Thinking of running a holiday let in Wales? Whether you’re a new host or a seasoned property owner, understanding the latest Welsh holiday let tax rules, business rates, and Furnished Holiday Let (FHL) legislation is essential to staying compliant and maximising your income.
In this updated 2025 guide, we break down everything you need to know about holiday let taxes in Wales — including council tax vs. business rates, capital allowances, income tax, and recent changes to the FHL tax regime. With regulations tightening and tax rules evolving, it’s vital to stay informed to run a successful and legally sound holiday letting business.
Keep reading for your complete guide to holiday let tax in Wales and how it affects you and your holiday let…
Council Tax vs. Business Rates
One of the first considerations for holiday let owners is determining whether the property falls under council tax or business rates. This distinction depends on how frequently the property is rented out.
Council Tax
- If your holiday let is available to rent for fewer than 140 days a year, it will be classified as a residential property and will be subject to council tax.
- In recent years, Welsh local authorities have been granted powers to charge a council tax premium on second homes and empty properties. This can range from 50% to 300%, depending on the local authority’s policies. The rationale behind this is to curb the negative impact that holiday homes and second homes may have on local housing markets, particularly in tourist hotspots where local people struggle to buy homes due to inflated property prices.
Business Rates
- As of April 2023, if your holiday let is available to rent for at least 252 days per year and actually let for at least 182 days, it qualifies as a self-catering property and is liable for business rates rather than council tax.
- Small Business Rate Relief: Many holiday let owners in Wales can benefit from Small Business Rate Relief. Properties with a rateable value of up to £6,000 may qualify for 100% relief, with tapered relief available up to £12,000.
Recent Changes: Stricter Letting Thresholds (April 2023-2025)
The Welsh Government has implemented stricter thresholds to determine eligibility for business rates, as outlined above.
From April 2025, the UK Government has also abolished the Furnished Holiday Let (FHL) tax regime. This means all holiday let income is now treated the same as standard property income, with no special CGT reliefs, capital allowances, or pension contribution eligibility.
Tax Treatment of Holiday Lets Post-FHL
- Holiday let owners are required to pay income tax on profits generated from their properties, and profits are now calculated in line with normal property income rules.
Mortgage interest relief is now limited to the basic rate of 20%, and capital allowances can no longer be claimed. Instead, the Replacement of Domestic Items Relief applies for replacing furnishings.
- CGT reliefs like Business Asset Disposal Relief and Rollover Relief are no longer available for holiday lets.
- Pension contributions based on holiday let income are no longer permitted, as the income is not considered ‘relevant earnings’.
Income Tax on Holiday Let Income
- Holiday let owners in Wales are required to pay income tax on the profits generated from their properties. From April 2025, the Furnished Holiday Let (FHL) regime has been abolished, and income is now treated the same as income from standard residential property lettings.
- Profits Calculation: Profits are calculated by deducting allowable expenses from gross rental income. Allowable expenses include maintenance costs, utility bills, cleaning, insurance, and mortgage interest — though this is now only deductible at the basic rate of 20%, in line with standard property tax rules.
- Profit Allocation: For jointly owned properties (e.g., between spouses), profits must now be split according to legal ownership shares, as is standard for other property income. The flexibility under FHL rules no longer applies.
Capital Allowances
From April 2025, holiday let owners can no longer claim capital allowances on items such as furniture, fittings, or appliances. These properties are now treated the same as other residential lets.
- Replacement of Domestic Items Relief: You can still deduct the cost of replacing domestic items (e.g., beds, sofas, fridges) when they are like-for-like replacements of worn-out items. This does not apply to initial purchases or property improvements.
- Annual Investment Allowance (AIA): This no longer applies to holiday lets, as they are not classed as qualifying businesses for AIA purposes under the new rules.
Inheritance Tax (IHT)
Holiday lets may still potentially qualify for Business Property Relief (BPR), but this is now much harder to obtain. To qualify, you must prove the property is run as a genuine business with substantial additional services (e.g., concierge, catering, cleaning, etc.). Passive or agency-managed lets are very unlikely to meet this threshold.
Owning and operating a holiday let in Wales can still be profitable, but the removal of FHL tax benefits and stricter letting thresholds mean owners must now navigate a more complex tax landscape. Tax reliefs such as CGT exemptions, capital allowances, and enhanced pension contributions no longer apply under the new system.
As always, it is highly recommended to consult a tax adviser or accountant to ensure you are complying with the latest legislation and making the most of any remaining tax reliefs available.
Please Note: The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA.
As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providing and can’t provide you with this.
As a holiday letting owner you are responsible for compliance with health & safety laws, regulations and guidance, and for having suitable insurances in place (not Sykes Holiday Cottages or its brands). From time to time, Sykes shares information with you on the topic of health and safety and insurance. When it does so, it is not providing you with advice (legal, financial, tax or otherwise); please seek your own as you see fit. In addition, it is not making any representations or warranties about the information being complete or free from errors or inaccuracies. Sykes shall not be liable for any loss or damage arising under or in connection with your reliance on it.
