13th June 2025

Are holiday lets a good investment?

A holiday let is a property that is rented out on a short-term basis. In most cases, holiday lets are rented out for a week or so, but this can vary quite a lot. As long as no single stay exceeds 31 days, the property qualifies as a holiday rental.

Put simply, a holiday let is an entire property, such as a house, flat, or cottage, that is rented out to travellers and they are usually fully furnished and equipped with everything you might need and would expect to find in a home. Previously, you may have heard the term ‘Furnished Holiday Lets’ (FHLs), and these were properties that would have benefitted from certain tax benefits. As of April 2025, the furnished holiday let regime was abolished and as such this is no longer a relevant factor to consider. FHLs are now taxed in the same way as long-term residential or commercial lets.

What is a holiday let?

A holiday let is a property which is let out to holidaymakers on a short term basis. The most common length of stay is usually between three to seven days, but, according to tax regulations, as long as no stay exceeds the maximum of 31 days, the property can be classified as a holiday rental. There are also additional classifications of holiday lets, such as a furnished holiday let (FHL), which we’ll go into further detail on in later sections.

Is a buy-to-let the same as a holiday let?

No, while both are property investment strategies, holiday lets and buy-to-lets differ in several ways. To help you understand the differences we’ve highlighted the key points below:

Rental duration: Holiday lets cater to short-term stays, whereas buy-to-lets involve long-term tenancy agreements.
Tenant expectations: Holidaymakers often expect fully furnished properties with amenities as they won’t be there long, while long-term tenants may prefer unfurnished spaces so that they can decorate their new homes as they please.
Location: Holiday lets thrive in tourist hotspots, whereas buy-to-lets are common in urban or suburban areas.
Management intensity: Holiday lets require frequent turnovers, cleaning, and guest communication, demanding more hands-on management. As such, holiday lets need more time and effort invested, whereas long term lets are a more passive form of income stream so to speak.

There are also different costs associated with each type of let, which we’ll talk about in more detail below.

Initial investment and mortgages

Securing a mortgage for a holiday let can be more challenging than for a buy-to-let property. Lenders who specialise in holiday let deals often require larger deposits than buy-to-let properties would, and may offer less favourable terms due to perceived risks associated with short-term rentals.

Additionally, setting up a holiday home involves furnishing the property to a high standard, investing in marketing, and ensuring compliance with safety regulations, all of which contribute to higher initial costs even for cash buyers, as buy-to-lets can be advertised as unfurnished or part furnished which can keep these initial costs down.

Running and management costs

Operating a holiday home entails various ongoing expenses that buy-to-lets do not have. This includes everything from advertising and cleaning costs, to everyday household bills, internet and additional entertainment subscriptions. This is not something that buy-to-let landlords often need to worry about, as tenants in most agreements will need to pay for their own bills, and will clean the property themselves. Other costs you’ll need to consider include:

Cleaning and maintenance: Frequent turnovers necessitate regular cleaning and prompt maintenance to meet guest expectations.
Marketing and booking fees: Listing on platforms like Airbnb or Booking.com incurs fees, and professional photography or advertising may be necessary to attract guests.
Management services: Hiring a property manager can ease the workload but will reduce profits.

Investment income

Whilst so far, it appears that buy-to-lets seem more cost efficient, there is still the aspect of income to consider – and this is where holiday lets shine. Holding the potential to be a very lucrative and profitable venture, in prime locations or in luxury stays, holiday lets can fetch higher nightly rates, leading to greater annual income compared to traditional rentals. Owners also have the option to use the property themselves during off-peak times, or rent out to family and friends for a smaller fee, with less turnover and upkeep costs to still turn a profit.

Of course, success depends on careful property selection, effective management, and staying informed about regulatory changes. As mentioned with the FHL scheme abolition, things to watch out for include:

Abolition of FHL Tax Regime: Effective April 2025, the Furnished Holiday Lettings tax regime is abolished. This change removes previous tax benefits, such as full mortgage interest relief and certain capital gains tax advantages.
Council Tax Premiums: Local authorities now have the power to impose higher council tax rates on second homes, affecting profitability.
Planning Permissions: Some regions require specific permissions to operate short-term rentals, adding another hoop to jump through.

In regards to other taxes, holiday lets will be taxed like standard residential rentals. Mortgage interest relief will be capped at 20%, capital gains will be charged at the higher residential rate. It’s still possible to make good money with a holiday let, but planning is more important than ever.

Are holiday lets still worth it?

Only you can decide whether this type of investment is right for you. Holiday lets can still offer lucrative returns, but they require diligent management and a sound understanding of the legal implications. To start with, we recommend that you identify areas with consistent tourist demand to ensure that your property is always booked up, and calculate your initial investment and outgoings carefully within your budget.

We have properties in these highly sought-after locations, to get started browse our timed auction and auction event lots or read our guide on how to calculate holiday let yields to improve your chances of securing a profitable lot.