Holiday Let versus Buy to Let Property Investment

Published / Last Updated on 31/01/2024

According to Uswitch in 2021 there were 2.74 million property investors in the UK, and this does not include those that have set up limited companies to buy property, with around 5-6 million privately rented properties.  The British love affair with property continues despite government attacks on income, finance expenses relief, energy efficiency, fire and safety improvements, stamp duty, capital gains tax and inheritance tax.

During and after Covid-19 lockdowns there was also a huge surge towards holiday home and holiday let ownership rather than buy to let ownership. 

We have revisited this area to compare holiday let and buy to let differences.

Mortgage Availability and Deposits

  • There are more buy to let mortgage providers than holiday let mortgage providers but there are still plenty to secure an attractive deal.
  • 25% minimum deposit usually required for both.
  • Lending amounts are usually based upon your income and/or rental income potential for both although holiday let rental income will usually be higher, most lenders will expect valuers to allow for ‘voids’ i.e., periods where there is no holiday let income as the property is empty.
  • Mortgage Rates are similar.

Stamp Duty and Income Tax

  • Stamp duty rates are the same.
  • Income tax rates are the same and you can offset the same expenses for both buy to let and holiday let. 
  • That said, furnished holiday lets do have the advantage that you also have a ‘write down allowance against income tax for depreciation of all furniture whereas for buy to lets, it will usually only be carpets and curtains expenses.

Capital Gains Tax (CGT)

  • CGT is payable on the net gains of all investment properties sold or disposed of.
  • For buy to lets CGT will be 18% if the gain, when added to your income is still within the basic rate tax band and 28% if the gain when added to your income is in the higher rate tax band.
  • For holiday let properties (provided the property is run as a true business), HMRC will likely allow Entrepreneurs' Relief, now officially known as Business Asset Disposal Relief for CGT at a tax rate of 10% (up to a lifetime allowance on total business gains of £1m), provided you have owned the ‘business’ asset holiday let for 2 years or more. 
  • It is rare for HMRC to agree that a normal holiday let is a true trading business as most of the services provided are usually for renting a property out (i.e., it is real estate investing rather than a trade), and you would need to supply a much wider range of services.

Inheritance Tax (IHT)

  • Your buy to let property is part of your estate on death and may be subject to 40% IHT.
  • Your holiday let property, provided again you can prove it is a true business (very difficult) may be subject to business property relief i.e., IHT is 0%.
  • We repeat, it is rare for HMRC to agree that a normal holiday let is a true trading business as most of the services provided are usually for renting a property out (i.e., it is real estate investing rather than a trade) and you would need to supply a much wider range of services.

Council Taxes v Business Rates

  • For buy to lets, it is usually the tenant (not the landlord) that is responsible for council tax in full.
  • For holiday lets, they are usually registered with the local authority as a Furnished Holiday Let and they then treat them as small businesses and subject to business rates rather than council tax.
  • Most holiday lets are small enough to qualify for small business rate relief i.e.  zero business rates.  They are seen as bringing holiday makers into the area to spend money on local businesses and services, so local authorities do offer this incentive. 
  • We do not see this continuing for much longer given local authorities have been given power to charge double and even treble council taxes to 2nd homeowners and we do not see this as a major leap to subsequently include holiday lets and charge council taxes or full business rates.

Qualification to be Furnished Holiday Let

  • Must be available to rent for 210 days per year.
  • Must actually be rented out to a holiday maker for at least 105 days per year.
  • This means, as the owner, you may stay there too for small breaks and maintenance periods.

Qualification for a Furnished Holiday Let to be Considered a Business Asset for CGT and IHT

  • In the HMRC IHT Manual, it states that “furnished holiday lets will in general not qualify for business property relief.  The income derived from such businesses will largely consist of rent in return for the occupation of property.  There may however be cases where the level of additional services provided is so high that the activity can be considered as non-investment, and each case needs to be treated on its own facts.”
  • In the case of Commissioners for HMRC v Lockyer and another, Personal Representatives of Pawson (deceased) [2013], it was found that running the holiday let property manly consisted of the taking of active steps to find occupants, making the necessary arrangements with them, collecting payment of the rent, spending on repairs, redecoration and improvement of the property, maintenance of the garden and grounds to keep them in a tidy condition, keeping the property insured cleaning, the provision of heating and hot water, provision of a welcome pack, and being on call to deal with queries and emergencies were activities that fell on the investment side of the line rather than a trade.  The holiday let was an investment and not a trading business, therefore qualifying that most holiday lets are subject to CGT (on disposal) and included in the estate for IHT.
  • For a holiday let to be considered a business asset, we suggest you must go much further with income coming mainly from other activities, e.g.  horse riding and horse training courses, animal care/welfare and other related matters with the provision of holiday accommodation an incidental rather than the main purpose of the business.


  • In general, buy to lets offer a stable income with some management.
  • Holiday lets offer greater revenue opportunities of perhaps double and even treble income but there is much more work is involved unless you engage an agency.
  • Holiday lets also offer you the opportunity to stay over and take a break yourself.
  • You should not rely on the tax breaks for holiday lets regarding Business Asset Disposal Relief for CGT or Business Property Relief for IHT.
  • We suggest most property landlords should have a mix of both buy to let and holiday property to spread the risk of upward or downward turns in either sector.

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