Furnished Holiday Lets Post-2025 — What's Changed

If you own a furnished holiday let in the UK, the tax landscape has shifted significantly. The special tax regime for furnished holiday lettings (FHL) was abolished from 6 April 2025, and the implications are far-reaching.

For years, FHL properties enjoyed a privileged position in the tax system — treated more like a trade than an investment for many tax purposes. That preferential treatment is now gone. In this article, we will explain what has changed, what it means for your tax position, and how to adapt your planning.

What Was the FHL Regime?

Before April 2025, properties that met specific criteria as furnished holiday lets were treated as a trading activity rather than a property investment. To qualify, the property had to be:

• Available for commercial letting for at least 210 days per year
• Actually let for at least 105 days per year
• Not in long-term occupation (periods of more than 31 consecutive days to the same person could not exceed 155 days)

Properties that met these conditions enjoyed several tax advantages:

• Capital allowances on furniture and equipment (rather than the restricted replacement furniture relief available to other landlords)
• Mortgage interest relief at the full marginal rate (rather than the 20% tax credit restriction that applied to other residential lets)
• Business Asset Disposal Relief (BADR) eligibility on sale, offering a 10% CGT rate on qualifying gains
• Rollover relief allowing CGT to be deferred when replacing one FHL with another
• Relevant earnings for pension purposes, allowing contributions based on FHL profits
• Loss relief that could be used more flexibly than standard property losses

These benefits made FHLs an attractive proposition from a tax perspective, often more so than long-term residential letting.

What Changed From April 2025?

The Spring Budget 2024 announced that the FHL regime would be abolished from 6 April 2025. The change was confirmed and brought into effect, meaning that from the 2025/26 tax year onwards, FHL properties are treated the same as any other residential letting for income tax and CGT purposes.

Specifically, the following changes apply:

Mortgage Interest Relief

FHL owners can no longer deduct mortgage interest as a business expense against rental income at their marginal rate. Instead, like all other residential landlords, they receive a basic rate (20%) tax credit on mortgage interest payments.

For higher rate taxpayers, this is a significant hit. A landlord with £20,000 of mortgage interest previously deducted this in full against rental income. Now, the £20,000 generates only a £4,000 tax credit (20%), rather than reducing taxable income by £20,000 (which was worth £8,000 at 40%).

Capital Allowances

FHL owners can no longer claim capital allowances on furniture, furnishings, and equipment. Instead, they are limited to the replacement domestic items relief, which allows a deduction for the cost of replacing (but not initially furnishing) domestic items.

This is a meaningful change for anyone who has recently invested heavily in fitting out a holiday property.

Capital Gains Tax

FHL properties no longer qualify for Business Asset Disposal Relief. Instead of the 10% BADR rate on qualifying gains, owners will pay CGT at the standard residential property rates — 18% for basic rate taxpayers and 24% for higher rate taxpayers.

Rollover relief is also no longer available on FHL disposals. Previously, if you sold one FHL and bought another, you could defer the CGT. That option has gone.

For a comprehensive overview of CGT on property, see our capital gains tax property guide.

Pension Contributions

FHL profits no longer count as relevant earnings for pension purposes. If your only income was from FHL, you could previously make substantial pension contributions based on those profits. Now, your pension contribution capacity is limited to £3,600 gross (the minimum for non-earners) unless you have other relevant earnings.

Loss Relief

Losses from FHL activities are now treated as property losses, which can only be carried forward and set against future property income. They can no longer be offset against other income.

Transitional Rules

There are some transitional provisions to be aware of:

• Capital allowances already claimed — Items on which capital allowances have already been claimed will continue to be dealt with under the capital allowances regime until they are fully written down or disposed of. You will not need to "unwind" previous claims.
• Losses brought forward — FHL losses that arose before April 2025 and were carried forward will remain available to set against future FHL income (now just treated as property income) until used up.
• CGT disposals — If you exchanged contracts before 6 April 2025 but completed after, the date of the contract generally determines the tax treatment, so BADR may still apply in some cases.

Impact on Different Types of Owners

Higher Rate Taxpayers

The impact is most severe for higher rate taxpayers with mortgaged FHL properties. The combination of losing full mortgage interest relief and losing the BADR rate on disposal significantly increases the tax burden.

Owners Without Mortgages

If your FHL is mortgage-free, the loss of mortgage interest relief is irrelevant. You are still affected by the loss of capital allowances and BADR, but the overall impact is less dramatic.

Those Planning to Sell

If you were considering selling an FHL, the loss of BADR means your CGT bill will be higher. On a £200,000 gain, the difference between 10% (BADR) and 24% (higher rate CGT) is £28,000. That is a significant sum and may change the economics of a planned disposal.

Owners Relying on FHL for Pension Contributions

If FHL profits were your main source of relevant earnings for pension purposes, you need to review your pension planning. Without other earned income, your pension contribution capacity may have dropped dramatically.

Planning in the New Regime

The abolition of the FHL regime does not mean holiday letting is no longer worthwhile, but it does change the calculus. Here are some planning points:

Review Your Mortgage Structure

With mortgage interest now only relievable at 20%, the after-tax cost of debt has increased. It may be worth considering whether to reduce borrowing on FHL properties, especially if you have other savings or assets.

Consider Incorporation

For some holiday let owners, transferring the property into a limited company may be beneficial. Companies can still deduct mortgage interest in full and claim capital allowances. However, incorporation has its own costs and complexities (including potential CGT on transfer and Stamp Duty Land Tax), so take professional advice before proceeding.

Reassess Rental Strategy

With the tax advantages removed, you should reassess whether short-term holiday letting is still the most profitable strategy compared to long-term letting. The additional running costs, management time, and void periods of holiday lets may not be justified if the tax benefits no longer compensate.

Keep Impeccable Records

Regardless of the tax regime, accurate record-keeping remains essential. You need to track income, expenses, mortgage interest, and capital expenditure carefully. Accounted can help you manage your property finances cleanly, and Penny can assist with categorising expenses correctly.

For more on how the rules apply going forward, see our guide on furnished holiday let rules for 2026.

Frequently Asked Questions

Can I still claim any tax advantages for a holiday let? You can still claim the same deductions as any other residential landlord — the property income allowance (£1,000), replacement domestic items relief, and normal allowable expenses such as insurance, maintenance, and letting agent fees.

Does this affect my council tax or business rates? The income tax changes do not directly affect whether your FHL is rated for council tax or business rates. However, the government has been reviewing the business rates treatment of holiday lets separately, with tighter occupancy criteria being introduced.

What about furnished holiday lets in the EEA? The FHL regime previously extended to qualifying properties in the European Economic Area. This is now also abolished.

Related Reading

• The Tax Implications of Converting Commercial Property to Residential

• Property Allowance — The £1,000 Tax-Free Amount Explained

• Capital Gains Tax Property Guide

• Furnished Holiday Let Rules 2026

• Furnished Holiday Lettings Guide

Adapt Your Strategy Now

The FHL tax regime is gone, but holiday letting can still be profitable with the right planning. Make sure your financial records are up to date and review your position with a professional adviser.

Explore our property features built specifically for UK landlords.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk.

Accounted includes built-in property management — track rental income, Section 24, and allowable expenses across multiple properties. See property features →