The British holiday home has long held a dual allure: a lifestyle asset wrapped in the promise of income. From Cornish coastlines to Cotswolds cottages, demand for short-term lets remains resilient, but the tax landscape underpinning these investments has shifted dramatically.
For those building or expanding a portfolio, understanding how to structure ownership is now as important as choosing the right postcode.
For years, furnished holiday lettings (FHLs) enjoyed a privileged tax status, offering generous reliefs that blurred the line between property investment and trading business. However, the abolition of the FHL regime from April 2025 has fundamentally altered the equation.
As Fiona Wilkes, partner at accountancy and tax advisory firm Burgess Hodgson, explains: ‘The removal of these rules has levelled the playing field. Holiday lets are now taxed more like standard residential property businesses, which reduces many of the previous advantages.’
This means profits are taxed as property income, not trading income, and mortgage interest relief is restricted for individuals.
Added to this, capital allowances are limited compared to previous FHL treatment.
For investors, the emphasis has shifted from exploiting tax reliefs to structuring ownership intelligently.
The most successful portfolios are built not just on tax efficiency, but on realistic financial planning and operational discipline.
Buy-to-let vs holiday let: where do you stand now?
In practical terms, holiday homes are now closer to buy-to-let investments from a tax perspective, but with operational differences.
This means traditional buy-to-let investors face income tax on rental profits, restrictions on mortgage interest relief (basic rate only) and capital gains tax on disposal.
Holiday lets still differ in one crucial respect: income volatility. Lenders and HMRC both expect realistic projections across peak and off-peak seasons, making cash flow planning critical.
Paul Blaking, direct mortgages manager at Suffolk Building Society, says: ‘Rental potential is everything. Lenders focus heavily on projected income across the year, and location is key. Without strong tourism demand, securing finance can be difficult.’
Crucially, lenders may also:
Restrict the number of properties owned.
Limit personal usage of the holiday home.
Require minimum income thresholds.
Insurance: an essential but overlooked cost
Standard home insurance is not sufficient for a holiday let, as Rob Neal, holiday home insurance specialist at Howden, explains: ‘Holiday home insurance is designed for properties with irregular occupancy and paying guests. Standard policies often exclude these risks entirely.’
Capital allowances and cost efficiency
While traditional FHL benefits have narrowed, investors can still optimise returns through cost management and allowances. This includes:
Replacement of domestic items relief allows deductions when furnishings are replaced.
Certain fixtures and fittings may still qualify for capital allowances in specific circumstances.
Operational costs – cleaning, maintenance, utilities – remain deductible.
The strategic focus is no longer aggressive tax reduction, but efficient expense structuring and long-term yield optimisation.
Main residence integration: a hidden advantage
One often overlooked strategy is integrating holiday homes into broader residential planning.
‘Integration with main residence planning is only possible with personal ownership and, in some cases, life interest trusts,’ explains Fiona. ‘Companies and most trusts cannot benefit from principal private residence relief.
‘Professional advice is strongly recommended to tailor the ownership structure to your family’s circumstances, long-term intentions, and to ensure compliance with evolving tax rules.’
If a property is occupied as a main residence at any point, and structured correctly under personal ownership, it may benefit from partial principal private residence relief, reducing capital gains tax on sale.
This is not available under company ownership and only applies in limited trust structures, making it a valuable but nuanced planning tool.
Different strategies for ownership
1. Personal ownership
For most investors, personal ownership remains the default – and often the most practical –option. As Fiona notes: ‘Personal ownership is often the simplest route, but without the old FHL advantages, its tax efficiency depends heavily on the individual’s income level.
‘While company ownership allows tax deferral, extracting profits can ultimately result in a higher overall tax burden.’
2. Company ownership
Incorporation has surged in popularity in recent years, particularly among higher-rate taxpayers building larger portfolios.
Key benefits:
Corporation tax at up to 25 per cent, often lower than higher-rate income tax.
Full deduction of mortgage interest.
Ability to retain profits for reinvestment.
Shares can be transferred, aiding succession planning.
Yet the trade-offs are significant:
Double taxation when extracting profits (dividends or salary).
No access to PPR relief.
Higher administrative and compliance costs.
More complex mortgage arrangements.
3. Trust structures
For families thinking long-term, trusts offer a sophisticated, if complex, solution.
They allow multi-generational ownership, protection against divorce, bankruptcy or financial mismanagement, and controlled distribution of income and assets.
However, they come with higher tax rates (up to 45 per cent on income), capital
gains tax at trustee rates and potential inheritance tax charges at key intervals. Fiona says: ‘They also require legal set-up, ongoing administration, and compliance with trust tax returns and reporting. Furthermore, there are inheritance tax considerations, as they can be subject to inheritance tax charges on creation, at 10-year anniversaries and on exit, depending on the type of trust and value of assets.’
But, for many looking to invest, trusts are more about how to pass down a legacy to children and grandchildren.
Hannah Wallbridge is senior associate at law firm Gardner Leader, which specialises in high-net-worth clients. She says: ‘Trusts are less about tax efficiency and more about control and protection. They are particularly valuable where succession planning is a priority.’
A more strategic era of ownership
The golden age of tax-driven holiday let investing may have softened, but opportunity remains for those willing to adapt.
Today’s successful investor is less focused on loopholes and more on structuring ownership effectively, managing cash flow intelligently and planning across generations.
What’s the best way to own a holiday home?
1. ‘There is no single “best” structure – only the one that fits your priorities,’ explains Fiona. Your decision should reflect whether you’re focused on income, long-term growth or passing wealth on.
2. ‘Personal ownership offers simplicity and flexibility,’ she adds. It can allow access to principal private residence relief if you live there at any point, but higher-rate taxpayers may face larger income tax bills.
3. ‘Company ownership can work well for reinvestment and liability protection,’ she notes. Profits are taxed at corporation tax rates (currently 25 per cent) and mortgage interest relief is fully available, but taking money out can trigger additional tax and admin costs are higher.
4. Hannah Wallbridge says: ‘The best structure is never one-size-fits-all. It depends entirely on your long-term goals, family circumstances and appetite for complexity.’ While trusts can protect assets and manage inheritance across generations, they come with higher tax rates and complexity.
5. Crucially, Hannah adds: ‘Professional advice is essential. The right structure depends on balancing tax, risk and long-term family planning.’
How I did it
When Christine Buchanan left a 20-year career in advertising and media, she wasn’t simply seeking a lifestyle change, she was making a calculated investment decision.
At the age of 54, she purchased Croft Cottage in Castleton as part of her retirement planning.
Her timing aligned with favourable market dynamics. Castleton is in the Hope Valley, in the heart of the Peak District National Park.
It is among the UK’s top three locations for holiday let investment, with average annual revenues of £38,200 and bookings rising four per cent year-on-year.
Croft Cottage, however, significantly outperforms the local benchmark, generating between £70,000 and £75,000 annually, with occupancy rates of 90 to 95 per cent. That equates to 50 to 60 bookings and more than 300 guests each year.
‘One of the advantages of Castleton is that it attracts visitors throughout the seasons, not just in peak summer months,’ Christine explains.
Christine attributes success to a combination of location, guest experience and hands-on management. ‘The location was already a strong advantage, but we wanted to make
sure the property offered something extra,’ she says. Features such as a garden, pet-friendly policies, a games room and a hot tub have broadened the appeal.
However, strong revenues come with operational trade-offs. ‘One of the early learning points was finding the right balance between short breaks and longer stays,’ she notes. ‘Shorter stays can drive higher overall income, but they also come with more frequent changeovers.’
The implication is clear: higher yields often mean higher workload and costs.
On the financial management side, she is pragmatic. ‘It’s manageable as long as you stay organised and have the right support,’ she says, pointing to the use of the letting platform at Sykes Holiday Cottages, an accountant and local contractors.
Looking ahead, she remains cautiously optimistic. ‘There’s still strong demand for UK staycations… we’ve seen more people taking multiple shorter breaks throughout the year,’ she says.
In practice, her case shows that while the income potential is compelling, success in holiday letting depends on consistent, detail-driven execution rather than passive ownership..