Your Guide to Furnished Holiday Let Tax and Business Rates in Wales 2025

Navigating the tax rules for furnished holiday lets (FHLs) is complex, encompassing business rates, VAT, stamp duty, and more. This guide offers a clear and current overview of the essential tax regulations that holiday let owners in Wales need to be aware of now that the Furnished Holiday Let (FHL) regime has been abolished as of April 2025.

The Furnished Holiday Let (FHL) tax regime has long provided valuable benefits to holiday let owners. However, significant changes have now come into effect. As of 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax, the UK government has abolished the FHL regime. Consequently, income from properties previously classified as FHLs is now treated like other rental income for tax purposes. Below, we provide an updated guide to the current rules and recent changes, including council tax and business rates requirements.

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?

If your property is used for personal purposes and not commercially let, you will be liable for council tax. However, properties meeting the criteria for business rates (outlined below) may qualify for Small Business Rates Relief instead.

In Wales, councils can impose a premium on council tax for second homes, which you can read about in our guide about New Tax Rules for Second Homes. As of April 2023, some councils apply up to a 100% premium, and local authorities now have the power to increase this to 300%.

It’s crucial to understand that the actual percentage of the council tax premium applied to second homes varies significantly between local authorities across Wales. Therefore, you must check the specific policy implemented by your local council.

Additionally, there may be certain exemptions or circumstances where the premium doesn’t apply, such as if the property is genuinely available for long-term let for a significant period or is undergoing substantial renovation.

Consult your local council’s website or contact them directly for detailed information on their specific rules and any potential exemptions.

Small Business Rates Relief

Properties used as self-catering accommodation must be available to let for at least 252 days per year and actually let for 182 days to qualify for business rates in Wales. If eligible, you can apply for Small Business Rates Relief through your local authority, which may reduce your tax liability depending on your property’s 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.

Head to our blog Navigating the New Holiday Let Rules in Wales for more specific information.

How Did Holiday Homes Qualify as an FHL?

Prior to the regime’s abolition, properties had to meet these criteria to qualify:

• Commercially Let: The property must be let with the intention of making a profit.
• Furnished: The property must be furnished to a standard suitable for holiday accommodation.
• Availability and Occupancy: In Wales, the property had to be available for letting 252 days per year and actually let for at least 182 days.

In some cases, if you were unable to meet the letting criteria due to exceptional circumstances (e.g. COVID or refurbishment), HMRC allowed a ‘Period of Grace Election’.

If you owned multiple FHLs, occupancy requirements could be averaged across your portfolio.

What Were the Furnished Holiday Let Tax Benefits?

These benefits were removed from April 2025. Until then, they included:

• Capital Allowances: Claims on items like furniture, fixtures, and fittings.
• Tax-Advantaged Pension Contributions: FHL profits counted as “relevant earnings.”
• Capital Gains Tax Relief: Access to Business Asset Disposal Relief, Roll-Over Relief, and Hold-Over Relief.
• Income Splitting: Flexible profit allocation for jointly owned properties.

Note: These reliefs are no longer available from 6 April 2025 (individuals) and 1 April 2025 (companies).

What Can Be Classed as an Expense in an FHL?

Even though the FHL regime has ended, general expense rules similar to those for other rental properties now apply. Expenses must be:

• Claimed against commercial use only
• Not capital in nature (capital costs are no longer deductible but may qualify for relief under different rules)

Common deductible expenses include:

• Utility bills and refuse collection
• Loan interest (basic rate relief only)
• Advertising and letting agency fees
• Maintenance, cleaning, and consumables

If your Furnished Holiday Let business incurred losses in previous tax years under the FHL regime, these losses can typically be carried forward and offset against future profits arising from your wider property business now that the income is treated as standard property income. It’s important to keep accurate records of any prior losses to utilise this.

Stamp Duty (Land Transaction Tax in Wales)

As of December 2024, Wales increased the higher residential Land Transaction Tax (LTT) rates for additional properties:

• 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%
• Above £1.5 million: 17%

These rates apply to second homes and buy-to-let properties. The standard residential threshold remains at £225,000.

Head to our Complete Guide to Second Home Stamp Duty in Wales to find out more.

Value Added Tax (VAT)

If your holiday let generates more than £85,000 in annual taxable turnover (as of April 2023), VAT registration is required. Owners of multiple properties or larger businesses should review their VAT status.

Voluntary VAT registration may still offer advantages, such as reclaiming VAT on expenses.

What Has Changed in 2025?

The main change to holiday let tax rules is that from 6 April 2025 (1 April 2025 for companies), income and profits from Furnished Holiday Lets are now treated as part of the owner’s property business, and taxed like long-term lets.

Key changes include:

• Interest on finance costs (e.g., mortgage interest) is now limited to the basic rate of Income Tax.
• Capital allowances can no longer be claimed for qualifying expenditure.
• FHLs still qualify for ‘Replacement of Domestic Items Relief’, in line with other property businesses.
• CGT reliefs including Business Asset Disposal Relief, Rollover Relief, and Gift/Holdover Relief are no longer available.
• FHL income no longer counts as relevant UK earnings for personal pension tax relief.
• The separate ‘FHL’ and ‘UK Property’ sections in your tax return are now combined.
• UK property income and expenses are reported together, and tax is calculated on total net profit.
• The method for calculating holiday let profits has not changed.
• The higher Capital Gains Tax rate has been reduced from 28% to 24% (18% for basic rate taxpayers).

Who is Impacted?

If you’ve already claimed all your capital allowances and have no finance costs or mortgages, you may see minimal impact. Likewise, limited companies are unaffected in terms of finance cost deductibility, though Corporation Tax (19–25%) still applies.

What Capital Allowances Still Apply?

From April 2025, capital allowances on new purchases can’t be claimed, but you may still qualify for ‘Replacement of Domestic Items Relief’. Items include:

• Movable furniture (sofas, tables, bed frames)
• Furnishings (carpets, curtains)
• Household appliances (fridges, washing machines)
• Kitchenware (crockery, utensils, cutlery)

It’s important to understand that the more generous capital allowances specific to the FHL regime are no longer available for new purchases from April 2025.

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 2025 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, contact Menai Holidays today 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)