The Tax Benefits from Holiday Lets

Furnished holiday lets — properties rented out for short-term holidays — are becoming a hot topic in the UK. Recently, the Scottish Government introduced a new, stricter licensing scheme, aimed at curbing unscrupulous owners and introducing fair regulations. Many owners, however, are voicing concerns, referring to these changes as business-threatening. But HeraldScotland points out that in the midst of these opposing views, a significant financial aspect arises: the potential tax benefits linked to holiday property letting.

Tax Benefits from Furnished Holiday Lets

Unlike the more standard long-term rental properties, the income and capital gains sourced from furnished holiday lets may qualify for valuable reliefs that are typically restricted to trading businesses. Of course, these advantageous conditions come with certain obligations as laid out by Her Majesty’s Revenue and Customs (HMRC).

Key Conditions to Obtain Tax Relief

Primarily, these conditions stipulate that the property in question must be located in the UK or the European Union. The operation of letting out the property must have commercial intentions, primarily for profit generation. In any given tax year, the property must be available for short-term holiday accommodation for at least 210 days, and for half of that time (105 days), it must be genuinely let out to holidaymakers.

Flexibility in the Conditions

While these conditions may initially seem demanding, HMRC offers a degree of flexibility. If due to unforeseen circumstances, the magic number of 105 letting days is not achieved, a grace period applies. This means that the tax relief benefits can still be obtained for up to two consecutive years, as long as you can prove your genuine intention to operate as a furnished holiday let. However, caution is advised — if this situation extends into a third year, the property will subsequently lose its tax relief status.

Available Reliefs and Advantages

Assuming all conditions are fulfilled, various reliefs can come into play. For starts, interest paid on any borrowing directly linked to the property can be used to reduce taxable profits. In an era of rising borrowing rates, this could result in substantial income tax savings of up to 47% (the highest band of Scottish income tax). Also, any losses sustained from the holiday property letting can be offset against future profits.

Other advantages include the potential to increase the amount of tax-efficient pension contributions you can make each tax year, due to the rental business profits.

Postponing Capital Gains

Another strategic benefit is the option of deferring capital gains associated with holiday letting. If the property is sold off at a profit, the due capital gains tax (CGT) can be postponed by reinvesting the gains in other qualifying business assets up until they are sold. Moreover, if the holiday property is gifted, any capital gain arising can be postponed until the property is resold. There is even potential to tap into Business Asset Disposal Relief, which can lower the rate of CGT to only 10%.


The world of furnished holiday lets is ripe with financial incentives if navigated correctly. While more factors are at play, a knowledgable tax advisor can steer you through the intricacies, making the furnished holiday let a potentially attractive commercial venture in an ever-shifting property landscape.