For many UK families, a holiday home represents far more than bricks and mortar. It may be a place where generations of the family have spent summers together, a valuable investment, a source of rental income or an asset that has appreciated considerably over the years.
Whether it is a cottage in Cornwall, a lodge in the Lake District or a property overseas, a second home can become an important part of your overall wealth. But owning a holiday home also creates financial and estate planning considerations that should not be overlooked. As the value of property can form a significant part of an estate, deciding what happens to a second property after your death can be just as important as deciding what happens to your main residence.
With careful planning, you can consider how the property should be managed, who should ultimately benefit from it and how potential tax liabilities could affect the value passed to your beneficiaries.
A holiday home is part of your wider estate
One of the first principles to understand is that a second property does not sit separately from the rest of your wealth when considering your estate. For Inheritance Tax purposes, the value of assets you own can contribute to the value of your estate. This means a holiday home, alongside your main residence, investments, savings and other assets, may need to be considered when assessing your overall estate planning position.
For families who have owned a property for many years, this can be particularly significant. A holiday home bought for £150,000 several decades ago could now be worth substantially more. While that increase in value may have been welcome, it could also mean that the property represents a considerable proportion of your estate.
The important question is therefore not simply, “Who should inherit the property?” It is also: “What would inheriting the property mean for my family and my wider estate?”
Should the property stay in the family?
For many owners, the ideal outcome is for a holiday home to remain within the family for generations. There may be considerable sentimental value attached to the property, particularly if children and grandchildren have grown up visiting it. However, keeping a property within a family can sometimes be more complicated than expected.
If several beneficiaries inherit a property jointly, decisions about maintenance, repairs, insurance, bookings and running costs may require agreement between everyone involved. One beneficiary may want to keep the property for family holidays, while another may prefer to sell it and receive their share of the proceeds. Before deciding that a holiday home should simply be passed to the next generation, it is worth considering whether the next generation actually wants the responsibility that comes with owning it. Open conversations can help identify expectations before they become disagreements.
Review your Will
Your Will is one of the most important documents when planning what should happen to your holiday home. If your Will is outdated, unclear or does not reflect your current wishes, your estate may not be distributed in the way you intend. Consider whether your Will specifically addresses your property and whether your intended beneficiaries are clearly identified.
You should also review your Will after significant life events, such as marriage, divorce, the birth of children or grandchildren, a major change in your assets or the purchase of another property. A Will is only one part of effective estate planning, but it provides an important foundation for ensuring your wishes are properly documented.
Consider the Inheritance Tax position
Inheritance Tax is an important consideration for anyone with a substantial property portfolio or significant assets. The value of a second property may contribute to the value of your estate for Inheritance Tax purposes, potentially increasing the amount that could be subject to tax.
The rules around Inheritance Tax can be complex, particularly where a family owns both a main residence and a second property. The Residence Nil Rate Band can provide an additional allowance in certain circumstances when a qualifying residence is passed to direct descendants. However, eligibility is subject to specific conditions and the relief can be affected by the size and composition of an estate.
A second home does not automatically qualify for the same treatment as a main residence. This is why it is important to consider the holiday home as part of the whole estate rather than looking at the property in isolation.
What if the property is rented out?
Many holiday homes are not used exclusively by their owners. Instead, they may be rented out to generate income when the family is not using them. This can make the financial position more complicated. Rental income needs to be considered alongside the costs associated with running the property, including mortgage interest, insurance, utilities, maintenance, management fees and other expenses.
There has also been an important recent change to the UK tax treatment of furnished holiday lets. The special Furnished Holiday Lettings tax regime was abolished from 6 April 2025. From the 2025/26 tax year onwards, the previous FHL tax advantages no longer apply and income from short-term holiday accommodation is generally dealt with under the ordinary property income rules. This means owners of holiday lets should not assume that arrangements that were tax-efficient under the previous FHL regime remain so today.
A review of the property’s income, expenditure and ownership structure can therefore be worthwhile.
Think about Capital Gains Tax
Inheritance Tax is not the only potential tax consideration. If you eventually sell your holiday home during your lifetime, Capital Gains Tax may be relevant if the property has increased in value.
Private Residence Relief is generally associated with an individual’s only or main residence. A second property that has been used as a holiday home will not automatically benefit from the same relief simply because the owner spends time there. HMRC specifically identifies second homes as an area where Private Residence Relief may not be available. This makes it important to consider the potential tax consequences before deciding whether to retain, gift or sell a second property.
The calculation can depend on how the property has been used, how long it has been owned and other individual circumstances. The abolition of the Furnished Holiday Lettings regime has also changed the Capital Gains Tax treatment of qualifying holiday lets. The special FHL treatment ceased from 6 April 2025. For anyone considering selling a holiday property, professional advice can help establish the likely tax position before a decision is made.
What happens if you gift the property?
Some property owners consider transferring a holiday home to children or other family members during their lifetime. While this can appear attractive, gifting property is not necessarily straightforward. A transfer may have tax consequences, including potential Capital Gains Tax implications, and depending on the circumstances, the gift may also need to be considered as part of wider Inheritance Tax planning.
There are also practical considerations. Once a property has been gifted, the original owner may no longer have complete control over it. The recipient may decide to sell it, mortgage it or use it differently. There may also be questions around who pays for repairs, insurance and ongoing running costs. A lifetime gift should therefore be considered carefully as part of a wider financial and estate plan rather than simply as a way of reducing the value of an estate.
Could a trust help?
For some families, a trust may form part of an estate planning strategy. Trusts can potentially provide a structured way of holding and managing assets, but they are not suitable for everyone and can have complex legal and tax consequences. A trust may be considered where there are particular family circumstances, concerns about control or a desire to establish specific arrangements around how assets are managed for beneficiaries.
However, placing a holiday home into trust is not a decision to make without professional advice. The appropriate structure depends on your objectives, the value and use of the property, your wider estate and the needs of your beneficiaries.
Don’t overlook the practical costs
Estate planning is not just about tax. A holiday home comes with ongoing financial responsibilities. Insurance, council tax or business rates, utilities, maintenance, repairs and management costs can all continue regardless of whether the property is occupied. If the property is inherited by several family members, these costs need to be considered carefully. It can be useful to discuss practical questions in advance:
- Who will pay for maintenance?
- Who will manage bookings if the property is let?
- Who decides when major repairs are required?
- Can family members use the property whenever they wish?
- What happens if one beneficiary wants to sell?
- How will the proceeds be divided?
- What happens if one beneficiary can no longer afford their share of the costs?
These conversations may feel uncomfortable, but addressing them early can help prevent disputes later.
What about an overseas holiday home?
If your second property is outside the UK, additional considerations may apply. The tax treatment of property can differ significantly between countries, and there may be local inheritance, property or capital gains taxes to consider. The interaction between UK rules and the rules of the country where the property is located can also be complicated.
For example, the country where the property is situated may have its own rules determining how the property passes on death. Anyone with an overseas holiday home should therefore consider both the UK and local position as part of their estate planning.
Don’t let sentimental value cloud the financial picture
It is completely understandable to have an emotional attachment to a holiday home. For many families, the property represents decades of memories and family traditions. However, it is important to separate the emotional value of a property from its financial and practical implications. A property may be worth £500,000 financially but have a very different value to each member of the family.
One child may see it as a treasured family retreat. Another may live hundreds of miles away and have no interest in maintaining it. Good estate planning does not mean deciding what your family should do. It means considering the options and helping ensure your wishes are clear.
Review your plans regularly
Estate planning should evolve as your circumstances change. A second property may have increased significantly in value since you last reviewed your Will. Your mortgage may have been repaid. Your family circumstances may have changed. Tax rules may have changed too.
The abolition of the Furnished Holiday Lettings regime is a good example of why previously suitable arrangements should not simply be assumed to remain appropriate. Regular financial reviews can provide an opportunity to consider whether your holiday home continues to fit within your wider wealth and estate planning strategy.
Protecting more than a property
A holiday home can be one of the most enjoyable assets you own, but it can also become one of the more complicated assets to pass between generations. The key is to look beyond the property itself. Consider its value, how it is used, the income it generates, the tax implications, the needs of your beneficiaries and the practical responsibilities that come with ownership.
At Elevation Wealth Management, our approach to financial planning considers the wider picture, helping clients understand how different aspects of their wealth can work together. Estate planning can include areas such as inheritance planning, trusts and Lasting Powers of Attorney, depending on individual circumstances.
Your holiday home may be somewhere your family escapes to every summer. With the right planning, it can also become an asset that is passed on with greater clarity and fewer complications. If your second property is an important part of your wealth, now could be the right time to review what would happen to it – and to the rest of your estate – in the future.
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The Financial Conduct Authority does not regulate Taxation, Trusts or general estate planning.