Taxation on holiday homes: What you need to know

Buying a holiday home is something many dream about – a cosy retreat for yourself or a place to bring in extra income. But before you get too excited, it’s worth asking: what are the tax rules around holiday homes?

How much tax you pay depends on how you use the property – whether it’s just for personal use, occasionally rented out, or run as a furnished holiday let.

How are holiday homes taxed?

Personal use only

If you use your holiday home purely for personal stays, there’s no rental income to report to HMRC. This also means you can’t deduct any expenses like mortgage interest or maintenance costs.

When purchasing a second home, such as a holiday property, you will be subject to higher rates of Stamp Duty Land Tax (SDLT). If you sell the property later and it’s increased in value, you’ll likely be liable for Capital Gains Tax (CGT). The rate is 18% or 24%, depending on whether the gain falls within your basic or higher/additional rate income tax band.

Council tax is typically due unless your local authority applies exemptions or charges business rates instead.

Occasional letting

If you rent your property occasionally – for example, via Airbnb or short-term summer lets – you’ll need to report the income to HMRC.

You can deduct allowable expenses such as insurance, cleaning, and advertising. If you earn less than £1,000 a year, you may not need to pay tax at all due to the property allowance.

Furnished Holiday Let (FHL)

Previously, holiday homes that met certain conditions could benefit from more generous tax treatment as Furnished Holiday Lets. However, the FHL regime has been abolished from April 2025.

This means that from the 2025/26 tax year onward, FHL-specific benefits – like Business Asset Disposal Relief at 10%, pension contribution eligibility, and capital allowances – will no longer apply. If your rental property previously qualified as an FHL, it would be worth seeking professional advice when completing your tax return for the 2025/26 tax year to ensure all changes are correctly reflected.

What if my holiday home is abroad?

If you’re a UK resident and own a holiday property overseas, tax obligations still apply.

• Rental income must be reported to HMRC and may also be taxed locally.
• You may be able to claim Foreign Tax Credit Relief to avoid double taxation.
• On sale, CGT will apply in the UK, and local taxes may also be charged. You must also complete a UK CGT return and pay any tax due within 60 days of the sale.
• If inherited, the property forms part of your estate for Inheritance Tax (IHT) purposes, as UK-domiciled individuals are taxed on worldwide assets.

FAQs

What are the tax implications of buying a holiday home?

If it’s your second property, you’ll pay an additional 3% on top of standard SDLT rates. Mortgage interest is not usually tax-deductible unless the property is rented out, in which case you may be eligible for a basic rate tax credit for mortgage interest.

What are the tax implications of selling a holiday home?

CGT applies to the sale of a holiday home. From April 2025, FHL-specific CGT reliefs no longer apply, so gains are taxed at 18% or 24%, depending on your income tax band. You must also complete a UK CGT return and pay any tax due within 60 days of the sale.

Do you pay council tax on holiday homes?

Yes – in most cases. Local councils can now impose up to a 100% council tax premium on second homes. But if the property is available to let for most of the year and used commercially, it may be charged business rates instead.

Need support?

Owning a holiday home can bring both enjoyment and extra income – but it’s important to stay tax-aware.

Whether your property is for personal use, occasional letting, or located abroad, your tax position depends on how it’s used. With changes like the end of the FHL regime from April 2025, it’s worth reviewing your position now.

Need tailored advice? Get in touch with us — we’ll help make sense of it all.