I'm looking at buying a holiday let in 2025. With potential SDLT changes for second homes in 2026, should I rush the purchase now or wait to see if the rules around Furnished Holiday Lets (FHLs) and the higher rate of SDLT might be different/more favourable then?
Quick Answer
The decision to purchase a holiday let now or later hinges on current Stamp Duty Land Tax (SDLT) rates, the uncertain future of Furnished Holiday Let (FHL) tax advantages beyond April 2025, and local council tax policies on second homes. Investors should model profitability under various scenarios.
## Implications of Purchasing a Holiday Let in 2025 Under Current Rules
When acquiring a holiday let in 2025, Stamp Duty Land Tax (SDLT) is a primary consideration, with the additional dwelling surcharge standing at 5% since April 2025. This 5% surcharge applies on top of the standard residential SDLT rates: 0% on the first £125,000, 2% on £125,000-£250,000, 5% on £250,000-£925,000, 10% on £925,000-£1.5M, and 12% on amounts over £1.5M. For instance, purchasing a £350,000 holiday let means a standard SDLT of £8,750 (0% on £125k, 2% on next £125k, 5% on final £100k) plus a 5% surcharge of £17,500 (£350,000 * 5%), totalling £26,250 in SDLT. This upfront cost significantly impacts the initial capital outlay and overall investment viability, which is a key factor many landlords consider for their BTL investment returns.
Simultaneously, the Furnished Holiday Let (FHL) regime offers tax benefits such as capital allowances and the ability to claim mortgage interest against income, which is not available for individual landlords of standard residential lets under Section 24. However, the future of the FHL regime post-April 2025 is under review, creating uncertainty. While a property may qualify as an FHL if it's available for letting 140+ days per year and actually let for 70+ days, it is important to factor in the potential loss of these advantages when assessing long-term profitability. This consideration for ROI on rental properties is critical, as a change in FHL status would materially alter the after-tax yield of a holiday let.
From April 2025, local councils can also impose a Council Tax premium of up to 100% on furnished second homes. This means a property currently paying £2,000 in Council Tax could see the bill double to £4,000 annually. However, holiday lets that genuinely meet the criteria to be assessed for business rates (available 140+ days and let 70+ days) may be exempt from this premium. This discretionary policy varies by council, so investors must verify the specific local council's approach to council tax on second homes to understand potential holding costs.
## Potential Changes and Considerations Beyond 2025
While the 5% additional dwelling SDLT surcharge is legislated, there is ongoing political discussion regarding the broader FHL regime. Should the FHL tax benefits be abolished, holiday lets would fall under similar tax treatment as traditional buy-to-let properties, meaning mortgage interest would not be deductible against rental income for individual landlords, significantly reducing net profits, particularly for highly geared properties. This would alter the financial calculations for property investors and the overall landlord profit margins for holiday lets. The basic rate for Capital Gains Tax (CGT) on residential property is 18%, increasing to 24% for higher/additional rate taxpayers, with an annual exempt amount of £3,000. Any changes to how FHLs are treated for CGT would also directly affect exit strategies.
There is no indication of further SDLT changes specifically for holiday lets in 2026 that would make them more favourable than the current 5% surcharge. The focus of government policy has been on discouraging second homes to increase housing supply for primary residences. Waiting past 2025 does not guarantee a more favourable tax environment for FHLs or SDLT relief; historical trends suggest increased taxation on investment properties rather than reductions. The Renters' Rights Bill, expected in 2025, will abolish Section 21 evictions and introduce Awaab's Law, but these primarily affect long-term residential tenancies, not holiday lets. However, future legislation could expand to impact holiday lets.
## Scenarios for Decision-Making
**Scenario 1: Purchase made in 2025, FHL regime maintained.** You acquire a £350,000 holiday let, paying £26,250 in SDLT. Your FHL benefits, such as capital allowances and mortgage interest relief, continue, offering a favourable tax position on rental income and potential gains. This scenario is currently the most advantageous for tax-efficient operations.
**Scenario 2: Purchase made in 2025, FHL regime abolished post-April 2025.** You pay the same £26,250 SDLT up front. However, your post-April 2025 tax advantages are removed, meaning limited mortgage interest relief, thus reducing your net rental income and potentially your rental yield calculations. This would necessitate recalculating expected profit margins.
**Scenario 3: Delay purchase until 2026, FHL regime abolished.** You would still likely face the 5% additional dwelling SDLT surcharge, as no legislative changes are currently indicated to remove this. Additionally, the FHL tax benefits would already be gone, so you would buy into a less tax-efficient environment from the start, without having benefited from any remaining FHL relief periods.
## Steve's Rule of Thumb
If the viability of your holiday let investment relies disproportionately on specific tax advantages like the FHL regime, the deal is too fragile to proceed without modelling its profitability under a scenario where those advantages are removed.
## What This Means For You
Understanding the nuanced interplay of Stamp Duty, FHL tax benefits, and potential council tax premiums is critical for any holiday let investor. Most investors don't lose money because they rush, they lose money because they rush without a comprehensive understanding of the tax implications before they buy. If you want to know which investment makes sense for your finances, this is exactly what we analyse inside Property Legacy Education.
## What Has Changed Regarding SDLT for Holiday Lets?
As of April 2025, the additional dwelling surcharge for Stamp Duty Land Tax (SDLT) has increased to 5%. This means that any purchase of a second home, including a holiday let, faces a 5% levy on its entire value on top of the standard residential SDLT rates. For example, a buyer of a £400,000 holiday let will pay approximately £11,250 in standard SDLT and an additional £20,000 due to the surcharge, making the total SDLT £31,250. This change adds significant upfront capital expenditure to the buying process.
## How Does the Uncertainty Around FHL Affect Investment Decisions?
From April 2025, the future of the Furnished Holiday Let (FHL) tax regime is uncertain. Currently, FHLs benefit from capital allowances on furniture and fixtures, mortgage interest deductibility against rental income, and favourable Capital Gains Tax rules like Entrepreneurs' Relief. If these benefits are removed, holiday lets would be treated similarly to standard buy-to-let properties for tax purposes. This means individual landlords would no longer be able to deduct mortgage interest from rental income, instead receiving a 20% tax credit. This potential shift will reduce net income, particularly for properties financed with high loan-to-value mortgages, fundamentally altering the projected rental yield calculations and profitability of a holiday let.
## How Can Investors Mitigate Risks From These Changes?
To mitigate risks, investors should conduct thorough due diligence, focusing on profitability scenarios both with and without the FHL tax advantages. This includes stress-testing rental income projections against increased holding costs from the 5% SDLT surcharge and potential council tax premiums. Investors need to assess whether the property can still generate an acceptable return if the FHL benefits are withdrawn, and if the property is subject to the council tax premium for second homes. Consider whether the property could convert to a standard AST if the holiday let market deteriorates or tax rules become too punitive, assessing its income potential and local demand for long-term rentals in that scenario. This proactive assessment often involves looking at what refurb works for landlords in a changing regulatory environment.
Steven's Take
The uncertainty surrounding holiday lets with both the FHL regime review and static additional dwelling SDLT should make investors cautious but not entirely averse. I've built my portfolio by understanding the numbers, and the core principle for FHLs is to ensure the deal still works even without favourable tax treatment. The upfront SDLT cost is definite, but the ongoing tax benefits are not. Running scenarios for both outcomes, current FHL rules versus a standard BTL tax treatment, is essential before committing. Don't let speculation or anxiety drive your investment decisions; let robust financial modelling be your guide.
What You Can Do Next
1: Calculate your specific SDLT liability: Use the HMRC SDLT calculator at gov.uk/stamp-duty-land-tax to determine the exact cost of a 2025 purchase, including the additional 5% surcharge.
2: Research local council tax policy: Check the relevant local council's website (e.g., cornwall.gov.uk/counciltax for Cornwall) or contact their Council Tax department to understand their specific policy on second home premiums and eligibility for business rates for holiday lets.
3: Model two profitability scenarios: Engage a property tax specialist accountant (search 'property tax accountant' on ICAEW.com or ACCA.org.uk) to help you create financial projections for your chosen property both with and without the current FHL tax advantages.
4: Consult an FCA-regulated mortgage broker: Discuss how potential changes to FHL status could impact your mortgage product options and stress test your repayments against the Bank of England base rate (currently 4.75%) and typical BTL stress tests (125% rental coverage at 5.5% notional rate).
5: Assess exit strategy implications: Understand how potential Capital Gains Tax changes (currently 18% for basic rate, 24% for higher/additional rate taxpayers, with a £3,000 annual exempt amount) might affect your planned holding period and future sale.
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