If you’re still comparing second homes, holiday lets, and buy-to-let based on old tax advice, the ground has genuinely shifted. The Furnished Holiday Let tax regime, which once gave holiday lets meaningfully better tax treatment than standard rental property, was abolished from April 2025. Understanding what’s actually changed, and what genuinely hasn’t, matters before you commit to any of these three routes.
Three Genuinely Different Purposes, Three Different Products
A second home is for your own use – a cottage for weekends, never let out. A holiday let is let short-term to paying guests. A standard buy-to-let is let long-term under an Assured Shorthold Tenancy. Our Second Home Mortgages, Holiday Let Mortgages, and Buy-to-Let Mortgages pages cover each in detail – the genuine purpose determines both your mortgage product and your tax treatment.
Why the FHL Abolition Genuinely Matters
Since April 2025, mortgage interest on a holiday let is no longer fully deductible against rental profit – owners now receive the same 20% basic-rate tax credit that’s applied to standard buy-to-lets since 2020. The lower 10% Capital Gains Tax rate on sale has also gone, replaced by standard residential rates of 18% or 24%, with a narrow transitional exception only for businesses that ceased before April 2025 and sell within three years. This removed the main financial reason many investors chose holiday letting over standard buy-to-let in the first place.
A Worked Example on Stamp Duty
Consider a £620,000 stone cottage bought purely for family use, not let out. Standard Stamp Duty is £20,000, plus the 5% additional-dwelling surcharge on the full price, adding £31,000 – a total of £51,000. It’s worth knowing this same 5% surcharge applies equally whether you’re buying a second home, a holiday let, or a standard buy-to-let – the surcharge doesn’t discriminate by purpose, only by whether it’s an additional property.
Council Tax vs Business Rates: The One Genuine Distinction Left
This is now one of the few areas where second homes and holiday lets genuinely diverge. Second homes pay council tax, and a growing number of councils now apply a premium of up to 100%, effectively doubling the bill. Holiday lets can instead qualify for business rates if they meet occupancy thresholds – in Wales, currently 252 days available and 182 days actually let – which can work out considerably cheaper, though failing these tests means falling back to council tax plus the second-home premium.
Genuine Regulatory Changes on the Horizon
It’s worth knowing a national registration scheme for short-term lets in England is expected during 2026, likely starting as a voluntary stage before becoming mandatory. Separately, proposed new planning use classes would treat short-term letting as genuinely distinct from ordinary residential use, potentially requiring planning permission to convert a home into a holiday let, with local authorities able to designate zones where this applies regardless of scale. Wales already operates this kind of distinct use-class system, having introduced it in October 2022.
Why Lenders Assess These Three Products Differently
A second home mortgage is assessed on your combined personal affordability across both properties, since there’s no rental income involved at all. A holiday let mortgage typically uses an Interest Coverage Ratio around 145%, based on a qualified letting agent’s income projection or genuine trading history where the property is already operating. A standard buy-to-let is assessed against long-term rental income using broadly similar principles but a different comparable basis – an AST-equivalent rent rather than short-term holiday income.
Mortgage Availability: A Genuine Practical Difference
Second home mortgages are generally the most widely available of the three, since lenders are simply assessing your personal income rather than a third-party rental market. Holiday let mortgages draw on a genuinely narrower, more specialist lender pool, and rates typically sit higher than standard buy-to-let, reflecting the more variable nature of short-term letting income compared with a fixed-term tenancy.
If You’re Converting Your Existing Home Rather Than Buying New
If your plan involves keeping your current home as a rental while buying a new main residence, this is a genuinely different scenario again. Our Let to Buy Mortgages page covers this specific route, including the genuine Stamp Duty refund mechanism available if you complete the switch within the required timeframe.
Reviewing an Existing Second Home or Holiday Let
Given how much has genuinely changed since April 2025, it’s worth reviewing whether your existing mortgage and structure still make sense for your circumstances. Our Remortgage page covers when refinancing is worth considering, particularly if your property’s use, or your own financial circumstances, have shifted since you originally purchased.
Occasional Letting Without Genuine Commercial Intent
If you occasionally let your second home to friends or family without a genuine profit motive, this generally doesn’t shift its classification into holiday let or buy-to-let territory. Genuinely commercial letting, even occasional, is worth discussing openly with your broker, since it can change which product and lender criteria actually apply to your property.
Why the Comparison Genuinely Depends on Your Actual Plans
Given how much of the historic tax advantage between these three routes has now disappeared, the right choice increasingly comes down to how you genuinely intend to use the property – for yourself, for short-term guests, or for long-term tenants – rather than chasing a tax structure that, in most cases, no longer meaningfully differs between them.
Getting the Comparison Right for Your Specific Plans
Given how much genuinely depends on how you intend to actually use the property, it’s worth having this conversation properly rather than working from tax rules that may no longer apply. Get in touch with details of your plans, and we’ll help you understand which route genuinely suits you.
Frequently Asked Questions
Is a holiday let still more tax-efficient than a standard buy-to-let?
No, genuinely not any longer – since April 2025, holiday lets are taxed almost identically to standard buy-to-lets, with the same mortgage interest restriction and standard Capital Gains Tax rates applying to both.
Does the 5% Stamp Duty surcharge apply to all three property types?
Yes – the surcharge applies equally to second homes, holiday lets, and buy-to-let purchases, since it’s based on owning an additional property rather than the specific purpose.
What’s the one genuine tax difference remaining between a second home and a holiday let?
Council tax versus business rates – holiday lets meeting occupancy thresholds can qualify for business rates instead of council tax, potentially avoiding the second-home premium many councils now apply.
Can I let my second home occasionally without changing its mortgage classification?
Generally yes, provided there’s no genuine commercial profit motive – regular or profit-driven letting is worth discussing openly with your broker.
Are holiday let mortgages harder to get than second home mortgages?
Often yes – holiday let lending draws on a narrower, more specialist lender pool and is assessed against rental income projections, while second home mortgages are assessed on your own personal affordability alone.
Get in touch with details of the property and your genuine plans for it, and we’ll help you find a lender suited to your specific circumstances.
