The removal of the Furnished holiday let (FHL) tax relief on 6 April 2025 marked the end of a decade-long incentive for self-catering property owners. Despite the loss of special capital-allowance treatment and favourable finance-cost rules, the latest Holiday Let Index from Cumberland Building Society shows that the market has not only survived but, for many, thrived.
Profitability spikes after the FHL repeal
According to the index, 48% of landlords reported higher profitability in the twelve months following the repeal, while another 19% said their earnings were roughly unchanged. The most common response was to raise nightly charges – 47% of respondents increased their rates – and to focus on filling the calendar. Nearly half of the owners (46%) deliberately pushed occupancy levels upward, a strategy that appears to be paying off.
Guest behaviour is also shifting. Half of the landlords observed a surge in last-minute bookings, and 39% noted that stays are becoming shorter on average. The same proportion reported that travellers are more price-sensitive, prompting owners to fine-tune pricing models in real time. Nevertheless, 86% of owners claim to achieve gross rent yields of at least 5% with the 5-6% band representing the single most common range (44% of respondents).
Future outlook and investment plans
Optimism remains strong: 61% of landlords are confident about future yields, and a sizeable minority are planning to expand. 30% intend to purchase another holiday let within the next twelve months while 25% aim to grow their existing portfolio. These figures suggest that the sector views the current environment as an opportunity rather than a setback.
Industry voices, however, warn that the next fiscal round could alter the balance. Treasury minister James Murray confirmed on 10 September that the government is reviewing the tax treatment of short-term lets, especially the use of Small Business Rate Relief (SBRR) by owners of second homes. The review stems from concerns that some investors are classifying genuine holiday rentals as second residences merely to retain the full 100% relief available for rateable values up to £12,000.
Potential new levy and its impact
Recent reports indicate that Chancellor John Healey is contemplating a re-classification of certain holiday lets as second homes rather than businesses. Should that happen, affected owners would lose the SBRR and fall back to paying council tax – a shift that could add between £1,000 and £3,000 to annual costs, according to Alistair Handyside of the Professional Association of Self-Caterers. For operators whose net profit margin is as thin as £5,000 per year, such an increase could render the venture uneconomic.
The proposed change arrives alongside broader fiscal pressures. Treasury officials have signalled a need to raise up to £10 billion through either tax hikes or spending cuts, a target amplified by the economic fallout from the war in Iran. Critics, including Shadow Chief Secretary to the Treasury Richard Fuller, argue that a “holiday-cottage tax” would further burden owners and could depress the local economies that rely on tourist spend.
Local leaders are also in the mix. A recent initiative would empower English mayors to impose an uncapped tourist levy on accommodation, calculated as a percentage of the booking price rather than a flat fee. Hospitality bodies warn that such levies, already showing adverse effects in cities like Edinburgh, could jeopardise jobs in smaller communities that depend on the influx of short-stay visitors.
While many landlords have successfully increased rates, occupancy, and yields after the FHL advantage disappeared, the looming possibility of a second-home re-classification and new tourist levies introduces fresh uncertainty. Owners, lenders, and platform providers will be watching the October 28 Budget closely for concrete eligibility criteria, transition periods, and any discretionary powers left to local authorities.
