Navigating the tax rules for furnished holiday lets (FHLs) is complex, covering business rates, VAT, Land Transaction Tax and income tax treatment.
This helpful guide provides a clear and up-to-date overview of the tax rules holiday let owners in Wales now need to understand following the abolition of the Furnished Holiday Let (FHL) regime.
The Furnished Holiday Let (FHL) tax regime previously gave holiday let owners a number of valuable tax advantages. However, these rules have now ended. Income from properties that were previously treated as FHLs is now taxed in the same way as other residential rental income.
Below, we explain what this means in practice for holiday let owners in Wales — including council tax, business rates and the new tax treatment.
Keep reading for a full breakdown of Furnished Holiday Let Tax and Business Rates in Wales…
Here’s what we’ll cover:
Do I Need To Pay Council Tax?
Business Rates Relief
How Did Holiday Homes Qualify as an FHL?
What Were the Furnished Holiday Let Tax Benefits?
What Was Classed as an Expense in an FHL?
Value Added Tax (VAT)
What Has Changed in 2025?
Do I Need To Pay Council Tax on a Holiday Let in Wales?
If your property is used mainly for personal use and is not run as a commercial holiday letting business, you will normally be liable for council tax.
However, in Wales, self-catering properties that meet the required letting thresholds can be assessed for non-domestic business rates instead of council tax.
In addition, Welsh councils can apply a council tax premium to second homes.
Since April 2023, local authorities have been able to apply premiums of up to 100%, and from April 2025 some councils now have the power to charge up to 300% on long-term empty homes and second homes.
The level of premium varies by local authority, so it is essential to check your individual council’s policy.
Some exemptions and reduced premiums may apply in certain situations, such as:
- where the property is genuinely being marketed for long-term letting, or
- where the property is undergoing substantial structural renovation.
👉 You may also find our blog Navigating the New Holiday Let Rules in Wales helpful.
💡 Top Tip: Always confirm your liability directly with your local authority and keep evidence of marketing activity if you are trying to demonstrate that your property is available to let.
Consult your local council’s website or contact them directly for detailed information on their specific rules and any potential exemptions.
Business Rates Relief for Holiday Lets in Wales
In Wales, self-catering holiday accommodation must meet the following letting thresholds to be assessed for business rates:
- available to let for at least 252 days per year, and
- actually let for at least 182 days per year.
If your property meets these thresholds, it can be entered onto the non-domestic rating list and may qualify for Small Business Rates Relief, depending on its rateable value.
To determine your property’s rateable value, contact the Valuation Office Agency (VOA) or use the online calculator on the HMRC website.
Applications for Small Business Rates Relief can be made via the VOA by calling 03000 505 505 or emailing ratingwales@voa.wales.gov.uk.
💡 Top Tip: Meeting the 182-day letting requirement is now crucial not only for business rates purposes, but also for demonstrating genuine commercial use if your council reviews your classification.
How Did Holiday Homes Qualify as a Furnished Holiday Let?
Before the regime was abolished, properties had to meet all of the following criteria to qualify as an FHL:
- Commercially let – the property had to be run with a genuine intention of making a profit
- Furnished – suitable for normal occupation by guests
- Availability and occupancy tests – in Wales, the property had to be: available to let for at least 252 days per year, and actually let for at least 182 days per year
Where owners failed to meet the occupancy test due to exceptional circumstances (such as COVID-19 disruption or major refurbishment), a Period of Grace Election could be claimed.
Owners with multiple FHL properties were also able to average occupancy across their portfolio.
These qualification tests are now mainly relevant for historical claims and record-keeping.
What Were the Furnished Holiday Let Tax Benefits?
All of the following benefits were removed from April 2025.
Under the former FHL regime, owners could benefit from:
- Capital allowances on qualifying fixtures, fittings and furniture
- Tax-advantaged pension contributions, as FHL profits counted as relevant earnings
- Access to certain Capital Gains Tax reliefs, including: Business Asset Disposal Relief, roll-over Relief and hold-over (Gift) Relief
- Flexible income splitting between joint owners
These reliefs are no longer available from:
- 6 April 2025 for individuals, and
- 1 April 2025 for companies.
💡 Top Tip: If you sold or reorganised a holiday let before April 2025, it is worth reviewing whether any transitional reliefs or historic claims still apply.
What Can Be Claimed as an Expense for a Holiday Let in Wales?
From 2026, holiday lets follow the same expense rules as other residential rental businesses.
Expenses must:
- relate solely to the commercial letting activity, and
- not be capital in nature.
Typical allowable expenses now include:
- utilities and refuse collection
- letting agent and marketing fees
- cleaning and laundry
- routine repairs and maintenance
- guest consumables
Mortgage and finance interest is no longer deducted from profits. Instead, relief is given as a basic-rate tax reduction.
Any unused losses from your former furnished holiday let business can normally be carried forward and offset against future profits of your UK property business.
💡 Top Tip: Where you use your holiday let personally, you should clearly apportion costs between private and commercial use.
Land Transaction Tax on Holiday Lets in Wales (Stamp Duty Equivalent)
In Wales, Stamp Duty is replaced by Land Transaction Tax (LTT).
Higher residential LTT rates apply to second homes and buy-to-let properties. Following changes introduced in late 2024, the current higher rates are:
- Up to £180,000 – 5%
- £180,001 to £250,000 – 8.5%
- £250,001 to £400,000 – 10%
- £400,001 to £750,000 – 12.5%
- £750,001 to £1.5 million – 15%
- Over £1.5 million – 17%
The standard residential main-home threshold in Wales remains £225,000.
👉 Head to our Complete Guide to Second Home Stamp Duty in Wales for worked examples and more information.
💡 Top Tip: Always factor higher-rate LTT into your acquisition budget for holiday lets — it can materially affect your return on investment.
VAT for Furnished Holiday Lets in Wales
If your holiday let business has taxable turnover above £90,000 per year, VAT registration is compulsory (current threshold).
This applies to the total taxable turnover of your business — not per property.
Owners with multiple holiday lets should regularly review their combined turnover.
Voluntary VAT registration may still be beneficial in some cases, particularly where you incur significant VAT on refurbishment or ongoing costs.
💡 Top Tip: VAT on holiday accommodation is a complex area, especially where mixed personal use exists. Specialist advice is strongly recommended before registering.
What Has Changed for Furnished Holiday Lets from 2025 and into 2026?
From 2026 onwards, there is no separate furnished holiday let tax regime.
Holiday lets are now fully treated as part of a single UK property business.
This means:
- Finance and mortgage interest relief is restricted to the basic rate
- Capital allowances on new purchases are no longer available
- Replacement of Domestic Items Relief still applies
- Business Asset Disposal Relief, Roll-over Relief and Gift / Hold-over Relief no longer apply
- Holiday let profits no longer count as relevant earnings for pension contributions
- The former FHL and UK property sections on tax returns are combined
- All property income and expenses are reported together
- The method for calculating rental profits remains unchanged
- The higher rate of residential Capital Gains Tax is now 24% (18% for basic-rate taxpayers)
Who Is Impacted by the Furnished Holiday Let Tax Changes?
If you have no borrowing, and had already fully claimed historic capital allowances, the impact of the changes may be relatively limited.
Limited companies are not affected by the restriction on finance cost relief, although Corporation Tax continues to apply.
If you are considering incorporating or restructuring a holiday let portfolio in Wales, professional advice is essential before making any changes.
What Capital Allowances Still Apply to Holiday Lets?
From 2026, capital allowances on new purchases for holiday lets are not available.
However, Replacement of Domestic Items Relief still applies when you replace items such as:
- sofas, beds and tables
- carpets and curtains
- fridges, freezers and washing machines
- crockery, cutlery and kitchenware
Initial purchases do not qualify – only like-for-like replacements.
👉 If you’re new to holiday letting and looking for more information, head to our Beginners Guide to Holiday Letting in North Wales.
Looking for expert advice?
For further advice on the financial side of holiday letting, we would always recommend that you speak to a qualified professional who will be able to give you the best possible advice.
With the changes now in force, it is more important than ever to seek advice from a qualified professional. Our trusted partner, Zeal offer a FREE consultation and expert guidance in the following areas:
- Capital Allowances
- Tax Compliance
- Tax Structuring
Stay Ahead of the Changes
The abolition of the FHL regime in April 2025 has had a significant impact on how holiday let income is taxed. Staying informed about the current rules and planning for the upcoming changes will ensure you can optimise your tax position and avoid unexpected surprises.
For tailored advice and expert guidance, fill in the form below to contact us and ensure your business is prepared for the future.
Useful Links
- Furnished Holiday Lettings Tax Guide (GOV.UK)
- Capital Allowances & Balancing Charges (GOV.UK)
- Business Asset Disposal Relief (GOV.UK)
- Business Asset Rollover Relief (GOV.UK)
- Gift Hold-Over Relief (GOV.UK)
- Small Business Rate Relief (GOV.UK)
- Furnished Holiday Lettings Helpsheet 2021 (GOV.UK)
- New Tax Rules for Second Homes in Wales (Gov.Wales)
Note: The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA.As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providing and can’t provide you with this.
As a holiday letting owner you are responsible for compliance with health & safety laws, regulations and guidance, and for having suitable insurances in place (not Sykes Holiday Cottages or its brands). From time to time, Sykes shares information with you on the topic of health and safety and insurance. When it does so, it is not providing you with advice (legal, financial, tax or otherwise); please seek your own as you see fit. In addition, it is not making any representations or warranties about the information being complete or free from errors or inaccuracies. Sykes shall not be liable for any loss or damage arising under or in connection with your reliance on it.
