While the post-Covid period created a surge in landlords adding short-term lets to their portfolios, more recent changes have turned the tables with more to come in 2026.
In recent years, it has become more common for landlords to own a combination of short-term lets – for either holiday or business use – and long-term rentals in their portfolios.
This was exacerbated in the aftermath of the 2020 Covid pandemic due to multiple factors, including a spike in the number of people holidaying in the UK, while the ensuing cost-of-living crisis added to the appeal of ‘staycations’ rather than travelling abroad.
At the same time, a shifting housing market and tax landscape made short-term rentals an appealing option for landlords, with Section 24 finance rules coming fully into play in 2020 which meant that landlords could no longer deduct interest and other finance costs from their rental income. Instead, landlords could claim a 20% tax credit on their mortgage interest, which increased the tax liability for higher-rate taxpayers.
In terms of yields, short-term lets can often outperform buy-to-let, particularly during peak season when holiday rentals are in high demand in popular locations, meaning a significant leap in monthly income.
Yet, certain changes that have either come into effect or are set to do so have changed the outlook for the short-term holiday let market and could push more investors back into long-term buy-to-lets.
Changes to holiday rentals and short-term lets
One of the biggest draws to owning a holiday let as opposed to a long-term let was the way the income was taxed, as furnished holiday lets were exempt from the Section 24 finance rules, which meant owners could still claim tax relief on their financing costs.
But since April 2025, this exemption was abolished, meaning short-term let income is now treated the same as standard business property income. Other revisions included:
- removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
- withdrawing access to reliefs from taxes on chargeable gains for trading business assets
- no longer including this income within relevant UK earnings when calculating maximum pension relief
Rules have also become more stringent on the qualification of a furnished holiday let rather than a second home – a distinction that is crucial from a financial perspective as second homes are liable for council tax whereas holiday rentals pay business rates. In recent years, a growing number of councils, particularly in holiday hotspots, have imposed significant council tax premiums on second homes, in some cases of 100% which doubles the tax bill for owners.
To qualify as a furnished holiday let in England, the property must have been available to let for at least 140 nights over the past 12 months, and of those 140 nights must have actually been let for at least 70 nights. If these criteria aren’t met, the property will automatically incur a council tax bill.
Business rates are based on the property’s rateable value, which is an estimation by the Valuation Office Agency of how much it would cost to rent the property for a year on 1 April 2021.
By contrast, in London a 90-day rule applies to all short-term lets or holiday accommodation, which means it can only be rented out for up to 90 nights per year without specific planning permission. If the nights let out exceed this, the landlord must apply for permission for change of use.
Holiday let registration scheme in 2026
A proposed national registration scheme for short-term lets in England is expected to go live in 2026, potentially from April, although it may involve an initial voluntary stage before being rolled out as a mandatory scheme.
The issue was addressed by the previous government, which issued a consultation in 2023 in a bid to begin to address challenges in the sector that included difficulty monitoring compliance with health and safety regulations as well as the impact on the availability and affordability of homes in areas with higher numbers of short-term lets.
At the end of December, Housing Minister Baroness Taylor answered a written parliamentary question addressing short-term rentals, confirming: “The Department for Culture, Media and Sport is progressing a national registration scheme for short-term lets.”
The scheme is likely to require all short-term let and holiday rental owners to register their properties and provide other details, potentially with a fee involved. It would aim to make it easier for local authorities to keep track of compliance checks and monitor properties to ensure they meet minimum standards. While details of the potential scheme have yet to be revealed, it will add another layer of regulation to holiday let owners that could reduce the market’s appeal to some landlords.
Buy-to-let remains attractive for landlords
While numerous changes may have reduced the appeal of short-term lets for some landlords, the long-term buy-to-let market continues to generate strong returns for many landlords.
A shifting housing market landscape has sharpened the focus of many investors on long-term gains as opposed to quick yields, with house price growth remaining steady in recent years as rental prices have surged due to growing rental demand. This dynamic has reduced the appeal of turning a quick profit on buying and selling property, and instead switched the onus to prioritising the strongest rental yields for long-term income.
While the regulatory environment has also changed in the buy-to-let space, particularly with the long-awaited Renters’ Rights Act now in force and rolling out a series of changes covering aspects from anti-discrimination to eviction rules, landlords who stay ahead of the changes and focus on high-quality rentals are likely to be the least affected.
In mid-2025, according to Rightmove, the average UK gross rental yield was 6.3%, but this rose to an average of 8.1% while London brought in a steadier 5.7%. Every region has seen a rise in landlord rental yields, though, as the market continues to be supported by strong demand.
