Furnished Holiday Lets In The Rachel Reeves' World
The landscape for Furnished Holiday Lets (FHLs) has shifted. As of April 2025, the distinct tax advantages they once held over standard residential rentals have been abolished by the Labour government. For those familiar with the previous regime, this marks a significant change in how income and expenses are treated.
Previously, FHL owners enjoyed benefits like the full deduction of mortgage interest, access to capital allowances, and favourable Capital Gains Tax (CGT) reliefs. Now, these are largely aligned with the rules governing standard buy-to-let properties. Mortgage interest relief is now capped at the basic rate, capital allowances are restricted, and business-related CGT reliefs are no longer applicable.
While the tax benefits have diminished, it’s crucial to look beyond just the tax implications when considering investing in a furnished holiday let.
The big question is then – Is it still worth investing in holiday lets?
The Five Business Advantages of a Holiday Property Investment
- Potential for Higher Rental Income: Even without the previous tax breaks, the fundamental earning potential of a well-located and managed holiday let can still surpass that of a long-term rental. Nightly or weekly rates during peak seasons can be significantly higher, leading to a strong overall yield if occupancy is maximised. Think about popular tourist hotspots like the Lake District, Cornwall, or even coastal towns like South Shields – demand during holidays can be substantial.
- Flexibility in Pricing and Occupancy: Unlike the fixed monthly rent of a standard let, you have dynamic control over your pricing. You can make the most of seasonal demand, local events, and even adjust rates at short notice to fill vacancies. This agility can lead to increased revenue. Furthermore, you have more flexibility with your own use of the property when it's not let.
- Boosting Local Economies and Tourism: Despite the prevailing political opinion, investing in a holiday let contributes directly to the local economy. Tourists spend money in local shops, restaurants, and attractions, fostering economic growth. Being part of this vibrant ecosystem can be a rewarding business venture.
- Potential for Property Appreciation: Properties in desirable holiday destinations often hold their value well and have the potential for strong capital appreciation over time, driven by consistent demand from tourists and second-home buyers. Some seaside towns have seen significant growth in recent years.
- Diversification of Investment Portfolio: Holiday lets offer a different asset class compared to traditional buy-to-lets or other investments, providing valuable diversification to your overall portfolio and potentially mitigating risk.
And Five Personal Reasons!
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A "Home Away From Home" with Income Potential
Your holiday let will provide you with a personal retreat in a location you love! You can enjoy holidays there yourself or offer it to friends and family, blending personal enjoyment with income generation. Imagine having your own seaside escape that also earns you money when you're not using it. - Creating a Legacy and Family Asset: A well-maintained holiday let can become a cherished asset for future generations, providing both financial security and a place for family holidays for years to come.
- Engaging with People and Hospitality: If you enjoy interacting with people and providing a positive experience, running a holiday let allows you to be a host and create memorable stays for your guests.
- A Tangible and Enjoyable Investment: Unlike stocks or bonds, a holiday let is a tangible asset you can see, touch, and even enjoy. This can make the investment feel more personal and rewarding.
- The Opportunity to Curate a Unique Space: You have the creative freedom to furnish and decorate your holiday let to a high standard, creating a welcoming and attractive space that appeals to guests and reflects your personal taste.
Last words on holiday let investments
Although the tax landscape has changed significantly, removing the advantages of serviced accommodation over standard buy to let investments, there are still good reasons for investing in holiday lets.
It’s a different type of investment, more hands on around booking and changeovers, depending on your own preference, but it can be extremely rewarding, both personally and financially.
It’s also a means to directly benefit the local economy supporting the pubs, restaurants, shops and attractions with a wider variety of customers.
As with any investment you should have a thorough understanding of the local market conditions as well as a sound business and operation plan.
Our funding experts have worked with holiday lets all over the UK and can help you to assess a project and select the perfect property for your portfolio.
