Furnished Holiday Let Tax: The Complete Guide

What Is a Furnished Holiday Let?

A Furnished Holiday Let (FHL) is a residential property that is furnished and let commercially as holiday accommodation. For tax purposes, FHLs have traditionally been treated differently from standard buy-to-let properties, with several significant tax advantages.

However, the government announced the abolition of the special FHL tax regime, with changes taking effect from April 2025. This guide covers both the current transitional position and what comes next.

The Traditional FHL Advantages

Until the changes take full effect, FHLs that qualified under the old rules enjoyed:

1. Capital Allowances

FHL owners could claim capital allowances on furniture, equipment, and fixtures — a more generous regime than the Replacement of Domestic Items Relief available to standard landlords.

2. Mortgage Interest Deduction

Unlike standard buy-to-let properties (affected by Section 24), FHLs could deduct mortgage interest in full as a business expense. This was the most significant advantage for higher rate taxpayers.

3. Business Asset Disposal Relief

When selling an FHL, owners could potentially claim Business Asset Disposal Relief (formerly Entrepreneurs' Relief), paying CGT at 10% on the first £1 million of qualifying gains instead of the residential property rates of 18%/24%.

4. Pension Contributions

FHL income counted as "relevant earnings" for pension contribution purposes, allowing owners to make pension contributions based on their FHL profits and receive tax relief.

5. Loss Relief

FHL losses could be offset against other income (not just other property income), subject to certain conditions.

The Qualifying Conditions

To qualify as an FHL, a property had to meet strict conditions:

Availability Condition

The property must be available for commercial holiday letting for at least 210 days per year.

Letting Condition

The property must actually be let commercially for at least 105 days per year.

Pattern of Occupation

No single period of occupation by the same person can exceed 31 consecutive days, and total longer-term lettings must not exceed 155 days per year.

Furnished

The property must be furnished to a standard that allows normal occupation.

Location

The property must be in the UK or European Economic Area.

The Abolition of the FHL Regime

The government announced the abolition of the special FHL tax regime. The key changes are:

Mortgage Interest

FHL properties will be subject to the same Section 24 restrictions as standard buy-to-let properties — no full deduction, only a 20% tax credit.

Capital Allowances

The ability to claim capital allowances on FHL property will be removed. The Replacement of Domestic Items Relief will apply instead.

Business Asset Disposal Relief

FHL properties will no longer qualify for Business Asset Disposal Relief. Sales will be subject to standard residential property CGT rates (18%/24%).

Pension Contributions

FHL income will no longer count as relevant earnings for pension purposes.

Loss Relief

FHL losses will be ring-fenced to property income, as with standard rentals.

Transitional Provisions

The changes include transitional provisions to avoid unfairly penalising existing FHL owners. Capital allowances claimed before the change are not clawed back, and there are provisions for losses and other items that span the transition date.

Planning for the Future

Review Your FHL Portfolio

With the tax advantages disappearing, the economics of FHLs change. Review whether your holiday let is still viable on standard rental tax treatment, or whether a different strategy (long-term letting, selling, or moving to a company structure) makes more sense.

Consider Your Structure

Some FHL owners may benefit from transferring properties to a limited company, which can still deduct mortgage interest in full and claim capital allowances. However, the costs of transfer (Stamp Duty, CGT) must be weighed against the benefits.

Maximise Remaining Advantages

If any transitional provisions apply to your situation, ensure you take full advantage of them before they expire.

Keep Detailed Records

The transition creates complex record-keeping requirements, with different rules applying to different periods. Maintain clear records of when capital allowances were claimed, what losses were generated, and when properties were available and let.

FHL Operating Requirements

Even if the tax advantages are reduced, running a successful holiday let requires:

• Marketing and bookings management
• Cleaning between guests
• Maintenance and repairs
• Insurance (holiday let policies differ from standard landlord policies)
• Compliance with safety regulations
• Business rates assessment (instead of council tax in some cases)

How Accounted Helps FHL Owners

Accounted supports property landlords including those with holiday lets:

• Income tracking — record bookings and rental income
• Expense management — capture cleaning costs, repairs, insurance, and marketing expenses
• Tax calculation — correctly apply the current rules (standard or transitional)
• Self Assessment preparation — all property data ready for filing

Visit our pricing page to learn more.

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FHL tax is changing — make sure you are prepared. Sign up for Accounted and let Penny help you manage your property tax correctly through the transition.