Buying a holiday rental can be an exciting investment for anyone looking to make their money go further.
But the combination of stalling house prices and concerns over high mortgage rates - given the uncertainty over when Bank of England will cut interest rates - may be putting you off. So, what’s the best way to profit from a holiday let?
We already know that naming your property can potentially add value to a home. It also goes without saying that location is key to profitability. According to the most recent census in 2021, holiday home hotspots across England and Wales are concentrated around coastal areas.
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Meanwhile, new Sykes Holiday Cottages research has revealed that the Cotswolds, Cumbria and the Lake District are the most profitable holiday let locations in the UK.
A property in one of these areas can rake in up to £28,500 annually in revenue, while the UK average stands at £24,500.
Graham Donoghue, CEO of Sykes Holiday Cottages, said: “Staycations have been growing in popularity over the past decade and right now demand for our UK holiday cottages is higher than ever, with the average annual income of a holiday let owner up as a result.
“Despite changes, it is clear that holiday letting remains a profitable and rewarding long-term business model, with the nation’s love of holidaying at home and exploring our incredible country going nowhere.”
But what locations are key in deciding where to buy a holiday rental and how much income can a property owner expect to receive? And what changes do holiday let owners need to be aware of?
We look at some of the most profitable holiday rental locations in the UK.
Most profitable holiday rental locations in the UK
The research by Sykes Holiday Cottages looked at internal bookings, revenue and website data from the past five years, plus additional consumer research and surveys of holiday let owners carried out by 3Gem and the Professional Association of Self-Caterers in the first quarter of 2024.
Taking the top spot is the Cotswolds in the south-west region of England. Holiday let owners can expect an average annual income of £28,500. The area is popular owing to its chocolate-box villages and picturesque hills.
In second place is a tie between Cumbria and the Lake District, which generates roughly £28,200 a year, while Dorset follows closely behind with £27,000.
These are the most profitable holiday rental locations in the UK, along with the average revenue it makes.
| Ranking | Holiday rental location | Average annual revenue |
|---|---|---|
| 1 | Cotswolds | £28,500 |
| 2 | Cumbria and The Lake District | £28,200 |
| 3 | Dorset | £27,000 |
| 4 | Cornwall | £26,500 |
| 5 | Peak District | £26,500 |
| 6 | Highlands and Islands | £25,100 |
| 7 | Northumberland | £25,000 |
| 8 | East Anglia | £24,900 |
| 9 | South Coast | £24,500 |
| 10 | North Wales | £24,400 |
Source: Sykes Holiday Cottages
What’s changing for holiday rental owners
While the above locations might look an attractive investment, bear in mind that your rental is unlikely to instantly make you profits.
There are several tax and regulatory changes happening that it would be wise to know about. Some of them could dent your expected profits.
1. Scrapping holiday lets tax perks
In a severe blow to holiday let owners, chancellor Jeremy Hunt announced in his 2024 Spring Budget that he will be scrapping the furnished holiday lettings (FHL) regime. This means that perks such as lower capital gains tax and full mortgage interest relief are set to disappear from April 2025.
According to tax advisory firm Zeal, holiday let owners could lose an average of £1,890 a year in tax, based on an average mortgage balance in the UK of £189,000, and assuming they are a higher-rate taxpayer.
Those who do not have a mortgage on their rental will be less impacted.
2. Licensing schemes introduced
The Scottish government already introduced a new licensing scheme for holiday rentals in October 2023. It allows local authorities to create their own conditions for holiday lets. Landlords have to submit health and safety documents to obtain the licence, along with a fee.
In England and Wales, an online holiday let registration scheme may be introduced in the coming months, which would include submitting property and contact information.
3. Planning permission on short-term holiday lets
Short-term lets in England will need planning permission for any properties that are second homes or empty. Last year, the Department for Levelling Up, Housing and Communities proposed major shake-ups to existing holiday rentals to support local people in finding affordable housing in tourist hotspots.
In Scotland, local councils can make some areas into short-term let control areas, where new holiday lets will need planning permission to operate. In Wales, local councils can introduce similar rules to England, while three new planning classes have been established – primary home, secondary home and holiday let.
4. Council tax crackdown
The latest council tax crackdown in Wales means that holiday lets must be open to visitors for 252 days a year and be in use for 182 days to be eligible for business rates. If not, then those properties would be charged a council tax premium, that could go up to 300%.
English and Scottish councils will also be able to charge second homeowners higher premiums if they don’t qualify for business rates – you are eligible if your let is open to the public for 140 days a year and is rented out for 70 days.
Despite these new changes, research by Sykes Holiday Cottages shows that property owners remain positive about the lettings market, with 86% not being deterred and some hopeful of buying another let soon. Plus, holiday bookings have seen an 8% rise year-on-year in 2023, which is up by 71% from pre-pandemic levels.
Andy Fenner, CEO of the Short Term Accommodation Association, said: “It’s no secret that the past few years have been tough for tourism, from the pandemic cutting off international travel to the current cost-of-living crisis, and recent tightening of regulations creating extra costs and confusion.
“However, the short-term rental industry has shown incredible resilience, and earned its place as one of the crown jewels of British tourism. Rather than casting blame, it would be more productive for governments to celebrate holiday lets as an integral component of the UK’s tourism industry.
“Not only do they bring in much-needed revenue to local businesses and generate new jobs across Britain, they have also democratised the broader hospitality sector by enabling visitors to explore areas that traditional hotels and guesthouses do not cover.”
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