From the Highlands to Edinburgh’s Old Town, Scotland’s holiday rental sector is facing a major tax overhaul in April 2025. The UK Government is abolishing special tax breaks for Furnished Holiday Lets (FHLs), bringing them in line with standard rental properties. While ministers say the move will create a fairer system, tourism businesses warn it could drive up costs, reduce availability, and reshape Scotland’s self-catering market. So, what’s changing, and what does it mean for landlords, holidaymakers, and local communities? Here’s what you need to know.
What’s Changing?
For years, landlords running holiday lets have enjoyed tax perks that aren’t available to regular buy-to-let owners. These benefits will be scrapped from April 2025, meaning:
- Higher tax on profits – Holiday let owners will no longer be able to deduct 100% of mortgage interest from their rental income before tax. Instead, they’ll get a 20% tax credit, which means higher tax bills for those paying the higher 40% or 45% income tax rate.
- Increased tax when selling – At present, FHLs qualify for Capital Gains Tax (CGT) relief, meaning landlords pay just 10% tax when selling under Business Asset Disposal Relief. From April 2025, that rate will rise to 18% or 28%, depending on income.
- No more business rates loophole – Holiday lets that meet certain occupancy thresholds currently qualify for business rates instead of council tax. In many cases, small holiday lets pay nothing thanks to rate relief. After April 2025, these properties could face full council tax bills – and in areas like Argyll & Bute, that could mean double council tax under new second-home rules.
- Less tax relief on refurbishments – Currently, holiday let owners can claim capital allowances on furniture and fittings, reducing their tax bills. This will end, and landlords will only be able to claim tax relief when replacing domestic items, like-for-like.
Why is the Government Making These Changes?
The UK Government says the tax shake-up is about fairness and housing supply. Ministers argue that FHL landlords have had an unfair advantage over traditional landlords and hoteliers, and that tax perks have encouraged a surge in short-term lets at the expense of long-term housing.
The changes are also part of a wider effort to ease housing pressures in tourist hotspots. Coastal towns, the Highlands, and cities like Edinburgh have seen growing numbers of homes converted into short-term lets, reducing housing stock for locals. By removing tax incentives, the government hopes to encourage some landlords to return properties to the long-term rental market.
How Will This Affect Scotland’s Tourism Industry?
Scotland’s tourism hotspots – from Skye to St Andrews – depend on self-catering accommodation to support millions of visitors each year. Many fear these tax changes will hit both holiday let owners and tourists.
- Fewer holiday rentals? Some landlords may find the new tax bills unaffordable and decide to sell up or switch to long-term rentals. In areas with limited hotels, this could reduce availability for visitors.
- Higher rental prices? Holiday let owners who continue operating may raise prices to offset higher tax costs, particularly in peak seasons.
- Impact on local businesses? If fewer tourists stay in self-catering properties, local shops, pubs, and restaurants could feel the impact.
How Much More Tax Will Landlords Pay?
Here’s how the tax changes will affect holiday let owners:
| Tax Benefit | Before April 2025 | After April 2025 |
|---|---|---|
| Mortgage Interest Relief | 100% deductible from rental income | Limited to a 20% tax credit |
| Capital Gains Tax (CGT) | 10% (Business Asset Disposal Relief) | 18% or 28% (depending on income) |
| Council Tax vs Business Rates | Many qualify for business rates (often zero) | Likely full council tax (may be double in some areas) |
| Furniture & Fixtures Relief | Can deduct costs through capital allowances | Only ‘like-for-like’ replacement relief |
What Happens Next?
With the changes coming in April 2025, holiday let landlords have some big decisions to make. Some may choose to sell up before the new tax rates apply, while others may increase prices or adjust their business models. Meanwhile, tourism bodies are urging the government to reconsider the impact on Scotland’s rural and coastal communities.
For visitors, the advice is simple: book early. Fewer holiday lets could mean higher prices and tighter availability, especially in Scotland’s most popular destinations.