On 6 April 2025 the Furnished Holiday Lettings regime was abolished, and a great deal of advice still circulating was written before that happened. Whether a guest house is a trade or a property business now changes your tax bill materially, and it turns on how it is run, not on what it is called. Add the rating test, the use class, and — north of the border — a licensing regime where trading without a licence is a criminal offence, and the accounts are only part of what you are buying.
Since 6 April 2025 the Furnished Holiday Lettings regime no longer exists. Whether your income is taxed as a trade or as a property business now depends on the level of service you actually provide — and it changes mortgage interest relief, capital allowances and what happens on disposal. It is the first question, not an afterthought.
In England a property is rated as a business only if it was available to let for at least 140 nights and actually let for at least 70. Guest houses usually clear it comfortably — and from April 2026 they sit on the hospitality multipliers of 38.2p or 43.0p rather than the standard ones. We give you the assessment, not an estimate.
Since 1 October 2023 every responsible person must record the fire risk assessment in full, whatever the size of the business. The five-employee exemption is gone. On sleeping accommodation this is the compliance item most often missing, and the most expensive to remedy after completion.
Our fee is paid by the vendor or the landlord. No buyer fee and no retainer — and no reason for us to talk up a business whose accounts do not support the asking price.
Owner-occupied with a flat on site, managed at arm’s length, or added to an existing portfolio. It changes the tax treatment, the mortgage product, the licensing position in Scotland and the planning question. It is a better starting point than a budget.
Use class from the consent, rating assessment and multiplier, fire risk assessment and its date, food hygiene and alcohol licensing, occupancy and rate data, and — in Scotland — the licence type and its expiry.
A guest house sale is a property transaction and a business transaction at once. Goodwill, forward bookings, staff transferring under TUPE, stock and fixtures are all negotiable separately, and the split affects what you pay and how it is taxed.
From 6 April 2025 the FHL regime was abolished. Properties that qualified under it lost the advantages that came with the status: full deduction of mortgage interest against profits, capital allowances on fixtures and fittings, treatment of profits as relevant earnings for pension contribution purposes, and the capital gains reliefs that attached to a qualifying FHL on disposal. Interest relief is now given at the basic rate, and anti-forestalling provisions were introduced to catch arrangements made in anticipation of the change.
What replaced it is not a simpler rule but a more fact-sensitive one. A property let with minimal service is a property business. A genuine guest house or B&B, where the operator provides breakfast, daily housekeeping, reception and other services, may be carrying on a trade under ordinary principles — which is a different and generally more favourable position, and one that never depended on FHL status in the first place.
In England, self-catering and holiday accommodation is assessed for business rates rather than council tax only where, over the previous twelve months, it was available to let commercially for at least 140 nights and actually let for at least 70, with continuing availability of 140 nights intended. A trading guest house normally clears both tests without difficulty; a lightly used property may not, and then council tax applies instead — potentially with a second homes premium.
Wales is materially stricter: 252 nights available and 182 nights actually let. From 1 April 2026 up to 14 nights donated to charity can be counted toward both thresholds. A business that would be rated in England can fall back into council tax in Wales on the same trading pattern, so the test has to be run against the right jurisdiction.
From 1 April 2026 guest houses fall on the retail, hospitality and leisure multipliers rather than the standard ones: 38.2p below £51,000 rateable value and 43.0p between £51,000 and £499,999. These replaced the annual RHL relief that previously had to be claimed each year — the discount is now built into the multiplier. Small business rate relief still applies separately below £12,000 rateable value, tapering to £15,000.
Hotels, boarding houses and guest houses sit in Class C1. That is outside Class E, so none of the flexible movement between shop, office and other commercial uses applies — a change of use to or from C1 is a planning application. Where an owner lets a small number of rooms within their own home the use may remain C3 residential, but that is a question of fact and degree, and local authorities take different views on where the line sits.
Short-term letting in Scotland requires a licence from the local authority, and has done since the scheme became fully operative — existing hosts had to apply by 1 October 2023. There are four licence types: home sharing, home letting, secondary letting, and a combined home sharing and home letting licence. Operating without a licence where one is required is a criminal offence under the Civic Government (Scotland) Act 1982.
Mandatory conditions attach to every licence: public liability insurance of at least £2 million, a current gas safety certificate, an Electrical Installation Condition Report, working smoke and carbon monoxide alarms, and an anti-social behaviour and complaints procedure. Whether a particular guest house falls inside the scheme depends on how it is operated and what other licences it holds, so confirm the position with the licensing authority before you commit — do not assume.
On top of the licence, control areas require planning permission for change of use to secondary letting. The whole of the City of Edinburgh has been a control area since 5 September 2022. And Edinburgh’s visitor levy applies to stays from 24 July 2026 at 5% of the accommodation cost before VAT, capped at the first five nights, collected by the operator and remitted to the council. Stays booked and paid before 1 October 2025 are exempt.
A guest house is not a single private dwelling, so the Regulatory Reform (Fire Safety) Order 2005 applies and the owner is the responsible person. Since 1 October 2023, under section 156 of the Building Safety Act 2022, the fire risk assessment and the fire safety arrangements must be recorded in full, regardless of the size of the business. The old exemption for premises with fewer than five employees has been removed entirely.
On sleeping accommodation this is the compliance item most often missing on a small guest house, and it is the one an insurer and a lender will both ask for. Get the current assessment, check its date, check who carried it out, and check that the actions arising from it were closed. Remedial fire work — compartmentation, doors, detection, escape routes — is expensive and it is not the kind of cost you want to discover after completion.
From 6 April 2025 the FHL regime no longer exists. Properties that relied on it lost full mortgage interest deduction, capital allowances on fixtures, the treatment of profits as relevant earnings for pensions, and the capital gains reliefs attached to the status on disposal. Interest relief is now given at the basic rate. But a genuinely operated guest house providing breakfast, housekeeping and reception may be carrying on a trade under ordinary principles, which is a separate and generally better position that never depended on FHL. It turns on how the business is actually run, so take advice on the specific facts before you agree a price.
In England, where over the previous twelve months it was available to let commercially for at least 140 nights and actually let for at least 70, with 140 nights availability intended going forward. In Wales the thresholds are much higher — 252 nights available and 182 actually let — so the same trading pattern can be rated in one country and council taxed in the other. From April 2026 guest houses sit on the hospitality multipliers of 38.2p or 43.0p rather than the standard 43.2p or 48.0p, and small business rate relief still applies separately below £12,000 rateable value.
In Scotland, almost certainly. Short-term letting requires a licence from the local authority, existing operators had to apply by 1 October 2023, and operating without one where it is required is a criminal offence. Mandatory conditions include £2 million public liability cover, gas safety, an EICR, working alarms and a complaints procedure. In England there is no equivalent licence: the proposed national registration scheme is not live and the C5 use class remains a proposal with no legislation laid. You will still need food hygiene registration, and a premises licence if you serve alcohol.
The Regulatory Reform (Fire Safety) Order 2005 applies because it is not a single private dwelling, and the owner is the responsible person. Since 1 October 2023 the fire risk assessment and the fire safety arrangements must be recorded in full regardless of the size of the business — the previous exemption for premises with fewer than five employees was removed by section 156 of the Building Safety Act 2022. On sleeping accommodation this is where problems most often surface. Ask for the current assessment, check its date and its author, and confirm the actions arising have been closed.
Both, and the split matters. A guest house sale usually combines the freehold or leasehold interest, the goodwill of the trade, the fixtures fittings and equipment, stock at valuation, and forward bookings with deposits already taken. Staff may transfer under TUPE on their existing terms. How the consideration is apportioned between property and goodwill affects the tax treatment on both sides, so it is negotiated rather than assumed. We separate the two before an offer goes in, so you know what each part of the price is buying.
