The new tax year, which began on 6th April, ushered in some new rules for owners of holiday let properties.
Under the changes, the favourable tax relief treatment offered to owners of furnished holiday lettings has been abolished. All holiday lets will now be treated in the same way as long-term residential and commercial lets.
Mortgage interest relief, which used to be fully deductible from rental income, will now be capped at a 20% tax credit. Business asset disposal relief, which applied a 10% tax rate to the first £1 million in lifetime gains, has also been scrapped.
Owners selling a holiday let will now face the standard 24% capital gains tax rate for residential property and will no longer be able to roll over gains into other business assets.
These changes come at a time when many holiday let owners have already faced pressures such as rising interest rates and increased living costs. For those who bought or converted a property in the last five years - and who may now be coming off a five-year fixed rate deal - these tax changes could prompt a review of whether the property still fits their goals.
According to BBC research, the number of holiday lets in England rose by 40% between 2018 and 2021. Government figures also show a 20% increase in second homes being converted into holiday lets during the pandemic.
With many of these borrowers likely to be reviewing their options this year, there may be increased market activity, with some choosing to sell and others looking to buy.
Unlike traditional buy-to-lets, holiday lets are short-term rentals. This means owners often need to invest more time and money to maintain high standards and secure repeat bookings.
For some, this is no longer worthwhile, but for others, especially experienced landlords with proven success, this could be a chance to grow their portfolio.
After all, well-run holiday lets in top locations remain in demand all year round.
Despite the potential challenges presented by tax changes, popular UK holiday destinations such as the Cotswolds, the Lake District and Cornwall continue to attract strong interest from holidaymakers. The holiday let market remains active, and we believe opportunities still exist for borrowers with the right strategy.
For existing holiday let owners, remortgaging could be a useful way to fund property improvements (whether that’s minor updates or major renovations) to stay competitive and attract high ratings from guests.
Balancing the needs and financial circumstances of each borrower is essential - for example, as a lender with a strong focus on holiday let mortgages, we offer holiday lets up to 80% LTV with a minimum income of £25k per year required and non-owner occupier, first-time buyers and first-time landlords aged over 25 years old will all be considered, plus we also allow up to 60 days of personal use per year, giving owners the flexibility to complete any work themselves.
We work closely with our intermediary partners to assess every case on an individual basis. This helps us build a clear picture of the client’s situation and respond quickly to any questions that may arise. It also means we can help secure the most suitable deal, supporting both short-term value and long-term goals in a market that remains active and resilient.
