Holiday lets can generate good income but come with a specialist mortgage and, since 2025, a significantly changed tax position. This guide explains holiday let mortgages: what a holiday let is, how the mortgage works, the deposit, the major tax changes, new regulations, and the stamp duty to budget for.
What a holiday let is
A holiday let is a property let out as short-term holiday accommodation, to a succession of guests for short stays, rather than to a long-term tenant on a tenancy. This differs from a buy-to-let, let on an assured shorthold tenancy, and from a second home, kept for personal use, as our guides to buy-to-let and second homes explain. The short-term, commercial letting defines a holiday let.
The holiday let mortgage
A holiday let mortgage is a specialist product, offered by a narrower range of lenders, assessed on the property's projected holiday rental income, often estimated across low, mid and high seasons, rather than a single long-term rent. Because holiday income is seasonal and variable, lenders assess it carefully. The specialist nature means a broker experienced in holiday lets can be valuable in finding a suitable lender and deal.
The deposit
Holiday let mortgages typically require a larger deposit than residential mortgages, often around 25% to 30% or more, reflecting the specialist, higher-risk nature of holiday letting. So you will usually need a substantial deposit. Knowing this helps you plan, as a holiday let is both a property purchase and a business venture, with the deposit a significant part of the upfront investment required.
The major tax change
A major change affects holiday lets: the Furnished Holiday Lettings tax regime was abolished from April 2025, so holiday lets are now taxed like other residential property businesses rather than enjoying the former trading-style tax advantages, as our guide to property tax relates. This is a significant shift for holiday let owners, who have lost a set of valuable reliefs that previously made holiday lets particularly tax-efficient.
What the tax change means
In practice, the abolition means mortgage interest now attracts only a basic-rate (20%) tax credit rather than full deduction, the capital allowances that let owners deduct the cost of furniture and fixtures are gone (replaced by a more limited relief), and certain capital gains tax reliefs on sale have been removed. Holiday let profits are now taxed as standard property income. These changes can significantly affect the returns from a holiday let.
New regulations
Holiday lets also face newer regulation, including moves towards a registration scheme for short-term lets, planning changes treating short-term holiday lets as a distinct use in some cases, and platforms reporting host earnings to HMRC. The exact rules vary across the UK and are evolving. So anyone running or considering a holiday let should check the current registration, planning and tax requirements, which have been tightening.
Stamp duty on a holiday let
Buying a holiday let usually means paying the higher-rate stamp duty surcharge, currently 5%, on top of standard rates, as it is an additional property, even though it is run as a business, as our guide to the stamp duty surcharge explains. This adds a substantial upfront cost. Budgeting for the surcharge, alongside the larger deposit, is essential when assessing whether a holiday let stacks up.
How income is assessed
Lenders assess a holiday let mortgage on the projected holiday rental income, often using estimates for low, mid and high seasons from a letting agent, since holiday income is seasonal rather than a steady monthly rent, as our guide to rental cover relates. The property must be expected to generate enough income across the year to cover the mortgage by the required margin, which is central to a holiday let assessment.
An example of seasonal income
A holiday let might earn a high weekly rate in peak summer, less in shoulder seasons, and little in winter, so its income is uneven through the year. Lenders allow for this by looking at the annualised income across seasons, not just peak weeks. Understanding that holiday income is seasonal and variable, with voids out of season, is important for both the mortgage assessment and running the holiday let profitably.
Holiday let versus buy-to-let
A holiday let differs from a buy-to-let in letting style and finances: holiday lets can earn more in peak season but have higher costs, more management, voids out of season, and now similar tax treatment after the FHL changes. Buy-to-lets offer steadier income from a long-term tenant. Choosing between them depends on the location, your appetite for hands-on management, and the numbers once tax is accounted for.
Limited company holiday lets
Some owners hold holiday lets through a limited company, partly for tax reasons, especially since the abolition of the Furnished Holiday Lettings advantages changed the personal tax position, as our guide to limited company ownership explains. Whether a company structure helps depends on your circumstances and is a question for a tax adviser. The structure affects both the mortgage options and the tax, so it is worth considering carefully.
The end of the FHL advantages
Before April 2025, qualifying furnished holiday lets enjoyed trading-style tax treatment: full mortgage interest deduction, capital allowances on furnishings, and favourable capital gains reliefs. The abolition of the regime removed these, so holiday lets are now taxed much like ordinary rental property. This is a substantial change that has reduced the tax efficiency of holiday lets, and owners should reassess their position with a tax adviser in light of it.
Is a holiday let still worth it?
With the loss of the Furnished Holiday Lettings tax advantages, the case for a holiday let now rests more on the letting income and the property itself than on tax efficiency, as our guide to whether property letting is worth it relates. A well-located holiday let with strong demand can still work, but the numbers should be assessed carefully, including the new tax position and higher management, before deciding it is worthwhile.
Getting it right
To make a holiday let work, choose a location with genuine holiday demand, budget realistically for seasonal income and the higher costs of short-term letting, understand the new tax and registration rules, and arrange the right specialist mortgage, ideally with a broker and tax adviser. Approached as a business with eyes open to the changed tax landscape, a holiday let can still be rewarding, but it demands more care than it once did.
The tax landscape has shifted markedly, so anyone buying or running a holiday let in 2026 should treat it firmly as a business, run the numbers under the current rules, and take tax advice before assuming the returns of the past still apply today.
In short
A holiday let is short-term holiday accommodation, needing a specialist mortgage assessed on projected seasonal income, usually with a deposit of around 25% to 30%. Since April 2025, the Furnished Holiday Lettings tax regime has been abolished, so holiday lets are taxed like other property businesses, with mortgage interest relief limited to 20%, capital allowances removed and some capital gains reliefs gone. New registration and planning rules apply, and the 5% stamp duty surcharge is due.
Where to get help and next steps
Read our guides to buy-to-let mortgages explained, second home mortgages, and property tax. This is general information, not mortgage, tax or financial advice; tax and scheme rules change, so consider a qualified tax adviser and check current details.