The Garveys arrive in Benidorm to spend Christmas with Madge and Mel at their palatial villa but Mel is absent, apparently stuck in Morocco on business. Donald and Jacqueline book into the Solanas with ten like-minded 'swingers', annoying manageress Janey whilst the Oracle's mother Noreen, a recent lottery winner, turns up with her new beau Clive - whose bad back leads them to be charged for lewd behaviour on the beach. Su Pollard is due to headline at Mel's Benidorm Palace but, after accidentally ending up at a nudist hotel, she is not happy and when Madge mistakes her for Rod Hull, with whom she argued twenty-five years earlier and insults her, Su walks out. Fortunately Donald and Jacqueline save the day by getting their friend Roy Wood to fill the breach and the evening is a great success with Clive also proposing to Noreen for the right reasons. Then Madge takes a fateful call from Morocco. . .

The surprise is on the Garveys when their surprise visit to Madge reveals that she has sold the Palace and her villa - to Cilla Black - and left no forwarding address. They book in to the Solana,where the Stewarts are also staying.With Troy at his dying father's bedside Gavin has returned with work-mate Kenneth,who never stops eating. Cross-dressing Les is the new poolside barman and his gormless young son Liam is smitten with pretty tourist Natalie,to the scorn of her sarcastic friend Sam. When Madge is finally located she reveals that Mel left her with huge debts,forcing her to sell up and move into a trailer park from which she has just been evicted as she owes rent. Janice decides she should stay at the Solana with them and the family and staff close ranks to see off Scary Mary,the park owner,when she comes to collect Madge's arrears.

Noreen arrives in Benidorm with her bossy daughter Pauline who alienates the Garveys with her manner but ends up inside a rubber ring with Mick at a water park,causing Janice to suspect the worst. Natalie agrees to a date with Liam to spite Sam who comes too and falls off a table while dancing. Janey is impressed by Lesley's initiative,which annoys Mateo, who falsely claims that children are scared by his transvestism.This backfires on him when Janey suggests that he should also drag up to make it seem more natural.Madge's uncharitable response to the Stewarts' whip-round to ease her financial woes also comes back to bite her.

Gavin is puzzled as to how the supposedly penniless Kenneth is raking it in after taking strange men to his room until it turns out that he is giving them hair-cuts. Mateo reluctantly begins his water aerobics class,which ends with Donald being taken to hospital. Janey is all for sacking the Spaniard but Lesley comes to his defence,reminding him that he now owes him. The Garveys learn that a gangster calling himself Mr. Pink has bought Mel's debts and go to meet him at a deserted theme park. He challenges Madge to a Go-Kart race,which she wins,thereby cancelling the debts as well as gaining her an extra three thousand euros,thanks to a side bet.

The resort is hit by a rain storm which floods the hotel. Whilst Les takes control Janice is thrown by the appearance of Johnny Neptune,whose marriage proposal she rejected years earlier. Reformed alcoholic Pauline is so bored she gets drunk and makes a show of herself when she wins the bingo and insults everybody before collapsing on Janey's dog. Donald drops a bombshell by announcing that he has only three months to live and tries out 'The Drugs Don't Work' at the karaoke as the song he would like played at his funeral.

Gavin learns that Troy's father has died so,to cheer him up, Kenneth takes him out for the day but,by design,ends up at a gay nudist beach where he gets chatted up by a bare hunk. Gavin is not pleased and sacks him. Madge has the chance to take over a bar - the site of Mel's former disability shop. She prays for a sign and gets one in the form of one of Mel's old thongs and agrees to go into business. Mateo accompanies Les on a double date to repay him for getting him his job back. Unfortunately Mateo has to drag up and gets arrested for importuning.Bananarama arrive for the 1980s evening and get mistaken for a tribute band as there are only two of them. Jacqueline,however,successfully makes up the trio but Liam is less successful in his persistent pursuit of Natalie.

After Donald's clothes and a suicide note are found on a beach Gavin and Kenneth help Jacqueline bid him farewell. The British consul however suspects an insurance fraud. Due to a misunderstanding at a gladiatorial theme park Janice finds herself in the arena where she defeats all-comers. Troy arrives in Benidorm,a wealthy man after his father left him several houses and four hundred thousand pounds. Pauline celebrates a successful divorce,Liam declares his appreciation of his father and Madge opens her bar,publicly thanking the Garveys for their support whilst Mateo is exposed - literally - as a cheat with a wife and children. Most of the Brits head home,except Jacqueline,who has an appointment in Morocco.