A UK guide to diversifying into holiday lets

Strong UK ‘staycation’ demand, profitable nightly rates in the right locations and seasons, plus the appeal of having the personal use of a second home, all account for growing numbers of landlords and investors diversifying into holiday lets.

At the same time, the rules relating to holiday lets have become more complex. The abolition of the Furnished Holiday Let (FHL) tax regime from April 2025, new planning ‘use classes’ for short-term lets, plus local restrictions in some parts of England, Wales, and Scotland, have made diversification more complex. Before you invest in a holiday let, it’s more important than ever to calculate the possible return on your investment.

We’ve put together this guide to help you work out whether diversifying into holiday lets is right for you.

Is a holiday let a profitable investment?

The pros: high turnover, a healthy market, and an enjoyable asset

Undoubtedly, the biggest advantage of owning a holiday let is its earning potential. Analysis in Sykes Holiday Cottages’ Holiday Letting Outlook Report 2025 shows that the average turnover for a holiday let owner in the previous year was £24,700. However, if you own a property in one of the UK’s holiday hotspots, you can expect your gross income to be even more. The average turnover for properties in Grasmere, Cumbria, is a very healthy £43,200, closely followed by £40,400 for those in Bourton-on-the-Water in the Cotswolds. You’ll need to consider your running costs in your calculations to ensure that you’ll make a profit.

Given that the average income of unincorporated buy-to-let landlords is £19,400, it’s clear that there’s a lot of extra value to be had from a holiday let.

One reassuring factor is that the staycation market continues to grow. The Sykes Staycation Index 2025 indicates:

63% of people will take a UK break during the year, with 34% making it their main holiday.

The average person will have taken 3 UK breaks in the year.

Summer stays are up 9% year on year.

Holiday spending is up, with Brits expected to spend an average of £1,292 on their main UK break, up from £1,070 the previous year.

It's worth noting that income from any holiday let is dependent on occupancy rates. Sykes puts the average UK occupancy rate at 32%, which, depending on your property’s location, can be concentrated in the spring and summer. On the plus side, this means you have plenty of opportunities to enjoy your holiday let yourself or lend it to family or friends.

The cons: higher costs and higher levels of commitment

Before you invest in a holiday let, it’s important to realise that it’s very different to being a buy-to-let landlord, both in terms of expenditure and commitment.

While a long-term tenancy with a good tenant is steady and predictable, operating a holiday let typically requires a lot more ongoing involvement from you. You’ll be welcoming new guests every few days, need to be on hand to answer their questions, and be active in marketing your property on platforms like Airbnb and Booking.com. You’ll also need to organise cleaning and laundry after each stay, not to mention keeping an eye on reviews.

The costs follow the same pattern. A typical buy-to-let doesn’t need furnishing, so basic, functional decoration is all that’s often needed. A holiday let has to be fully equipped and feel welcoming, both in marketing photos and from the moment guests walk through the door. This means your upfront costs are higher. Furnishing, luxury bedding, kitchen equipment, outdoor seating, and small touches like throws and lamps all add up.

Running costs also differ. Holiday let owners pay bills that long-term buy-to-let tenants usually cover: utilities, broadband, cleaning, laundry and general upkeep, although you should ensure your nightly rate covers the cost of utilities you’d expect guests to use. Booking platforms and marketing tools will also take a cut of your income. If you’re not managing the property yourself, holiday letting agents will take a cut of between 15% and 25% of your booking income. This could make holiday let ownership unviable.

You also need to remember that income rises and falls with the seasons. A great summer or autumn doesn’t guarantee a busy winter. By contrast, a buy-to-let property is likely to deliver a predictable income throughout the year with a reliable tenant in place.

Holiday lets also experience more wear and tear due to a high turnover of guests. Items break, appliances wear out more quickly, and you may have the occasional guest who doesn’t treat the place as carefully as you’d like. For this reason, specialist holiday home insurance is essential: insurance for a traditional buy-to-let isn’t designed for this kind of use.

Income tax and rental income

Currently, individual landlords of both holiday lets and standard buy-to-lets pay income tax on their rental profits at the usual income tax rates. From 6 April 2027, the government will introduce separate property income tax rates in England, Wales, and Northern Ireland: 22% at basic rate, 42% at higher rate, and 47% at additional rate. These are two percentage points higher than the main income tax rates and will apply to most unincorporated landlords.

Scotland will set its own approach through the Scottish Budget, and the UK government has said it will give Scotland and Wales formal powers to set property income tax rates in line with their existing income tax powers, so landlords in those nations should keep an eye on local announcements.

Regulations you must understand

The rules concerning short-term lets have changed in recent years. For this reason, you need to be fully up to speed with relevant regulations, as they will have an impact on your profits and the amount of work you need to put into managing your property.

The end of the Furnished Holiday Let (FHL) tax regime

The Furnished Holiday Let tax regime ended in April 2025, so holiday lets are now treated similarly to a standard rental property for tax purposes. The table below summarises the main changes in force for individual owners of holiday lets (rather than those held by a limited company).

Former FHL rule (pre-April 2025)	New rule (from April 2025)	Summary of changes
Full mortgage interest deduction (for individuals)	Basic rate restriction (20% Tax Credit)	Increased tax bills. You can no longer deduct the full interest cost before calculating profit. This leads to significantly higher taxable income.
Capital allowances on furniture, fixtures, etc.	Replacement of Domestic Items Relief (RDDR)	Higher taxable profit. New capital expenditure on furnishings is no longer immediately or gradually deductible. Only replacements qualify for relief.
Trading status for tax purposes	Standard property investment status	Loss of key Capital Gains Tax (CGT) reliefs, such as Business Asset Disposal Relief (BADR), Rollover Relief, and Gift Holdover Relief, are withdrawn on disposal. Residential property CGT rates apply.
Profit counts as 'relevant earnings' for pensions	Profit does not count as 'relevant earnings'	Reduced pension contributions. Income from FHLs no longer contributes to the maximum amount an individual can pay into a personal pension scheme.
Married couples and civil partners could choose how to split FHL profits, and the split did not need to match their actual ownership shares	Default 50:50 income split	From the 2025–26 tax year, income from jointly owned properties that no longer qualify as FHLs is taxed 50:50 by default. Couples who want an unequal split must genuinely hold unequal beneficial interests and submit Form 17 to HMRC so that income is assessed in line with those ownership shares.

As you can see, holiday let ownership has lost many of the tax advantages it once had. While this means higher expenditure and lower profits, it doesn’t mean that owning a holiday rental property can’t still be worthwhile if you make your calculations before investing and seek tailored tax advice from a specialist adviser.

Planning rules, ‘use classes’ and the ‘10-year rule’

Planning rules control how land and buildings can be used (be sure to check your local council rules). Short-term holiday letting is treated differently across the UK, so you must look at national rules and local council policy before assuming a property can be used as a holiday let.

England

In England, most holiday lets are still legally within the standard dwellinghouse use class, Class C3, unless the pattern of short-term letting becomes so frequent that it counts as a material change of use. Whether that threshold is crossed is determined on a case-by-case basis. To do so:

Councils look at how often the property is let, how many guests come and go, and the impact on neighbours.

In quiet residential streets, a heavily used holiday let is more likely to be treated as a change of use than a quieter, occasional let.

In Greater London, there is an additional rule – the 90-day short-term let rule. You can let your main home for up to 90 nights in a calendar year on a short-term basis without separate planning permission. Letting over 90 nights will usually be treated as a change of use that needs permission.

Successive governments have consulted on creating a new ‘C5’ use class and a national register for short-term lets in England, but as of late November 2025, these reforms are not yet in force. Your current legal duties still depend on the existing C3 dwellinghouse class, the 90-night rule in London, and any local planning policy in your council area.

Wales

In Wales, an updated planning system for holiday accommodation is in force.

In October 2022, the Welsh Government amended the Town and Country Planning (Use Classes) Order 1987 to create three distinct dwellinghouse classes:

C3: main or sole residence

C5: second or holiday home used as a dwelling but not as a main residence

C6: short-term holiday let, usually where stays are up to 31 days at a time

On paper, permitted development rights allow movement between C3, C5 and C6 without a planning application. In practice, several authorities have tried to use Article 4 Directions to remove those automatic rights.

For a potential investor, the key takeaway is simple: in Wales, using a property as a full-time holiday let (C6) is no longer a guaranteed right. You may need planning permission to switch between a main home, a second home, and a holiday let. However, longstanding case law confirms that permission is only needed where there is a material change of use.

Scotland

In Scotland, the focus has been on licensing and control zones rather than new use classes. A national short-term let licensing scheme now applies to most holiday accommodation. On top of that, councils can declare ‘Short Term Let Control Areas’ where planning permission is required to use a whole dwelling as a short-term let.

Inside these areas, turning a residential property into a short-term let normally requires both a licence and planning permission.

Northern Ireland

Northern Ireland does not have a dedicated holiday let use class. Whether you need permission is decided case-by-case, depending on whether the level of letting amounts to a material change of use that affects the character of the property or nearby residents.

The 10-year rule in England

You may have heard of the ‘10-year rule’ as something that can help you secure the use of a property without planning permission. Unfortunately, this is one of the most misunderstood concepts in planning law.

In England, a use that has continued for long enough without enforcement action can become lawful through the passage of time. When that happens, the owner can apply for a Certificate of Lawfulness of Existing Use or Development (CLEUD), which formally confirms the right to continue that use.

Since 25 April 2024, the time limit for most new breaches of planning control has been ten years. This change was introduced by section 115 of the Levelling Up and Regeneration Act 2023, which amended section 171B of the Town and Country Planning Act 1990.

For new unauthorised holiday let use, the rules work as follows:

A council can take enforcement action at any point during the first ten years.

After ten uninterrupted years of operating as a holiday let, without significant breaks, and without enforcement action, the owner may be able to obtain a CLEUD confirming the use as lawful.

It is important to understand that the rule does not apply automatically. Two common misunderstandings cause problems:

The use only becomes immune if it was a material change of use in the first place. If holiday letting never crossed that threshold, the 10-year rule does not apply.

Even where there was a breach, the owner must prove continuous use with strong evidence. Councils routinely require booking records, accounts, utility information, and other documentation that covers the period in question.

It’s worth noting that there are also transitional rules. If a breach began before 25 April 2024, it may fall under the previous holiday let 4-year rule. Given the complexity and the importance of getting the evidence right, it’s a good idea to get professional advice.

Business rates versus council tax

Holiday lets are treated differently from standard homes for local property taxation. The key question is whether your property is assessed for business rates or council tax.

England

In England, a self-catering holiday property is rated for business rates rather than council tax if, in the previous 12 months:

It was available to let commercially for at least 140 nights AND

It was actually let commercially for at least 70 nights AND

You intend to make it available for at least 140 nights in the coming 12 months.

If these conditions are not met, you need to pay council tax on the property, potentially at a higher rate than your main home.

Where a property qualifies for business rates, the Valuation Office Agency gives it a rateable value based on the type of property it is and the income it can generate. As a result, your bill is worked out by multiplying that value by the national business rates multiplier, adjusted for any reliefs. You can calculate your business rates online.

Many small holiday lets in England benefit from Small Business Rate Relief. If you only let one property and its rateable value is below a set threshold, you may get a major discount, sometimes reducing the bill to zero.

Wales

In Wales, the thresholds are higher.

To be treated as a business property and assessed for non-domestic rates, a self-catering unit must:

Be available to let for at least 252 days in a 12-month period AND

Actually be let for at least 182 days in that period.

If a property does not meet these criteria, council tax applies. Many Welsh councils apply council tax premiums of up to 300 per cent on some second homes and underused holiday lets, which can leave owners with a large bill.

The Welsh Government is consulting on ways to alleviate the 182-day rule by allowing multi-year averaging, but the core 252- and 182-day tests are still the law at the time of writing.

Scotland and Northern Ireland

In Scotland, a self-catering holiday property is usually treated as non-domestic and charged business rates if it is not a main home, is available to let for at least 140 nights a year and is actually let commercially for at least 70 nights. Local Assessors review eligibility each year, and owners are asked to provide booking and advertising evidence; otherwise, the property can be moved into the council tax system.

In Northern Ireland, the split between domestic and non-domestic rates for short-term accommodation is also assessed on the basis of use and commercial intent.

It’s important to consult local guidance in these nations.

Where to invest in the UK

When it comes to investing in holiday lets, location is key.

Income varies enormously depending on where you buy. Sykes’ 2025 Holiday Letting Outlook Report and Staycation Index 2025 are, between them, invaluable resources for existing and potential holiday let owners. The reports show which regions are the UK’s top earners and highlight areas where owner enquiries and guest demand are growing.

The UK’s top-earning regions for holiday lets

The Sykes Holiday Letting Outlook Report identifies five top regions for 2024–25, based on average annual owner income. As these are regions, not individual towns or villages, you’ll need to do local research before investing.

1. The Cotswolds

The Cotswolds is the highest-earning region in the UK, with an average annual revenue of £29,000. It also contains several top-performing villages, including Bourton-on-the-Water (£40,400) and Stow-on-the-Wold (£40,000).

This is a tourist hotspot with year-round appeal. Great scenery, heritage towns, notable food venues, and well-known events help smooth out seasonal fluctuations.

2. Scottish Highlands & Islands

This breathtakingly beautiful region takes second place, with an average turnover of £28,200. Demand is strong across all seasons, driven by the scenery, outdoor tourism, and a notable rise in domestic travellers choosing remote breaks.

3. Cumbria & the Lake District

Another regular top performer, the Lake District combines high visitor numbers with reliable off-peak bookings, reflected in an average turnover of £27,000. Grasmere is the highest-earning place in the UK, with properties generating an average of £43,200 in income each year.

4. Dorset

Dorset is well known for being a strong coastal market, supported by family tourism, countryside appeal, and access to the Jurassic Coast. Owners earn an average of £25,900 annually.

5. The Peak District

Completing the top five, the Peak District delivers an average of £25,500 a year. Strong hiking tourism and easy reach from major cities make it an attractive, stable market.

Good-value regions with strong potential

Not every profitable holiday let sits in a high-cost hotspot. While Southwold in Suffolk is expensive, it has entered the top ten for average turnover for the first time. This report also considers whether East Anglia is an area to watch – it was the most popular location for holiday home enquiries in 2024, and Lonely Planet named the region as a top destination in 2025.

The Sykes Staycation Index 2025 also gives ideas about places to invest. It identifies popular regions and locations, trending destinations, plus tips about tapping into the ‘Tastecation’ or foodie tourism market.

Wherever you decide to invest, consider choosing a region you love that also offers consistent occupancy rates and returns. Also, if you aren’t going to manage the property yourself, factor in the cost of a letting agent specialising in holiday lets.

Checklist of costs

Before investing in a holiday let, it is worth running through the main costs you will need to budget for.

Mortgage

You may need a specialist holiday let mortgage, which is assessed differently from standard buy-to-let loans. Rates and criteria can vary, so it is worth factoring this in.

Stamp duty

Holiday let purchases normally attract the higher-rate stamp duty surcharge or land-transaction surcharge, depending on where you buy. This can significantly increase the upfront cost, especially in higher-value areas.

Business rates or council tax

Your property will fall under business rates or council tax, depending on how often it is let and the periods for which it is advertised. You need to be clear which charge will apply when making your calculations.

Insurance

Standard home or landlord insurance policies are unlikely to provide adequate protection for a holiday let. Holiday lets require specialist holiday let insurance that covers the building, contents, and your liability to guests and the public.

Letting-agent fees

If you use a holiday letting agent, expect to pay commission of around 15% to 25%. This usually covers bookings, guest communication, and changeover coordination.

Utilities and services

Holiday lets tend to have higher utility costs due to frequent occupancy and guest expectations. You will also need to budget for cleaning, laundry, and restocking between stays.

Maintenance and compliance

You need to keep on top of maintenance to keep the property in tip-top condition, including repairs, redecoration, and appliance replacement. Safety checks and compliance requirements also add to your running costs.

Marketing

Professional photography and copywriting for your listings can improve your booking rate. Some owners also invest in extra promotional activity during quieter seasons.

Should you diversify into holiday lets?

Holiday lets can be rewarding, both financially and in terms of lifestyle, but they should be approached with clear expectations and careful planning. By understanding the realities of day-to-day management, the impact of tax and regulatory changes, and the varying performance of different regions, you can make a well-informed decision about whether this type of investment is right for you. With a realistic budget and the right support in place, a holiday let can become a successful long-term asset.

If you are weighing up your options or need help protecting a new or existing holiday let, speak to Alan Boswell Group’s expert holiday let team for tailored guidance on 01603 649650. We can help you understand the risks, compare cover, and ensure your investment is protected.

Need help with your insurance?

If you are weighing up your options or need help protecting a new or existing holiday let, speak to Alan Boswell Group’s expert holiday let team for tailored guidance. We can help you understand the risks, compare cover, and ensure your investment is protected.

Speak to us: 01603 649650

A UK guide to diversifying into holiday lets

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In this article

Is a holiday let a profitable investment?

The pros: high turnover, a healthy market, and an enjoyable asset