Holiday Lets: overcoming taxing times
Lisa Hodgson, Senior Sales Manager at The Cumberland Building Society, reflects on the current UK Holiday Let market.
March research from Sykes Holiday Cottages showed that popular rural hotspots, including the Cotswolds and Cumbria, continue to deliver robust returns for landlords, with average incomes climbing year-on-year. Holiday let owners across the UK earned an average of £24,700 in 2024, marginally up on 2023, with high-performing areas like Grasmere in the Lake District generating over £40,000 annually. (1)
However, the abolition of the long-established Furnished Holiday Lettings (FHL) tax regime at the start of April is giving this buoyant market plenty to consider as it enters a period of transition. Many landlords will need guidance on what’s changing, how it affects their income, and how to adapt.
It’s important to remember that, while not everyone is qualified to offer specialist tax advice, you could benefit from partnering with a tax adviser who is. The taxation of property investment is becoming increasingly complex, and providing access to specialist tax advice could be a valuable additional service for your clients.
Why the government changed course
Announced in the Spring Budget 2024, the removal of FHL tax benefits is part of the government’s strategy to tackle the long-term rental shortage in tourist-heavy regions.
Previously, furnished Holiday Lets benefited from mortgage interest tax relief, capital allowances, Capital Gains Tax (CGT) rollover relief, and other favorable tax positions.
The government estimates this new regime will generate an additional £300 million in annual tax revenue. But the change has also triggered concern among Holiday Let owners – especially those already feeling the strain from rising running costs and council tax hikes in certain areas.
The same March survey from Sykes found that 33% of owners expect to be affected by the FHL tax change, while 45% say they have already been impacted by other regulatory measures, such as local council tax uplifts or new minimum letting thresholds in Wales. Almost three-quarters (74%) think these changes could even harm local economies that depend on tourism.
Offering landlord guidance
The higher costs associated with an increased tax and regulatory burden are likely to give investors a sharper focus on their other outgoings – not least their finance arrangements. This is an area where you can support your clients.
Remortgaging a Holiday Let to benefit from more favorable terms and monthly repayments is one such way to support your clients. There are still competitive and cost-effective choices available, so it’s worth shopping around to see whether you can reduce their cost of borrowing. At The Cumberland, for example, we offer a remortgage product with a fee of £299 for customers who qualify for your core holiday let range.
Another way for investors to improve returns is by investing in renovations that either boost rental income or make their property more appealing than others in the same bracket.
Upgrading interiors or adding amenities such as hot tubs or saunas can improve the guest experience and attract higher nightly rates. Investors can potentially raise the additional capital they need to fund these improvements when they remortgage. At The Cumberland, we’re always happy to lend for refurbishment, as long as the equity released sits within the agreed loan-to-value (LTV) limit.
Some landlords may also be able to extend their borrowing potential through top slicing. For those earning over £50,000, we can factor in personal income alongside the rental return as part of the affordability assessment.
A kinder approach to Holiday Let lending
The abolition of the FHL regime is a big hurdle for holiday let investors, but it’s also a real opportunity for you to demonstrate your value. The sector still has plenty of potential, and by partnering with a lender that understands this part of the market, you can help your clients make the most of it.
At The Cumberland, as we celebrate our 175th birthday, we continue to champion a people-first, community-focused approach to lending. Our holiday let mortgages are designed to support not just landlords, but the local communities they operate in too.
Click here for more information on our Holiday Let offering.
(1) Sykes Holiday Cottages’ Holiday Letting Outlook (March 2025)