Furnished Holiday Lettings: Tax Rules and Benefits

The Accounted Business Team·16 February 2026·7 min read

What Is a Furnished Holiday Letting?

A furnished holiday letting (FHL) is a residential property in the UK or European Economic Area (EEA) that you let out as short-term holiday accommodation. For tax purposes, FHLs have historically been treated differently from standard rental properties, with several valuable tax advantages.

However, the government announced significant changes that affect this regime from April 2025. If you own or are considering a holiday let, this guide covers everything you need to know about the current rules and what is changing.

Qualifying Conditions for FHL Status

To qualify as a furnished holiday letting in the 2025/26 tax year, your property must meet all three of the following conditions:

The Availability Condition

Your property must be available for commercial letting to the public as holiday accommodation for at least 210 days during the tax year. "Available" means genuinely marketed and ready for guests — not simply sat there empty.

The Letting Condition

Your property must actually be let commercially as holiday accommodation for at least 105 days during the tax year. Days when you let it to friends or family at mates' rates, or use it yourself, do not count towards this figure.

The Pattern of Occupation Condition

The property must not be let to the same person for more than 31 consecutive days during a period that totals more than 155 days in the tax year. In plain English, it needs to be used as a genuine holiday let with different guests rotating through, not as a long-term rental to one tenant.

Period of Grace Election

If you met the letting condition in the previous year but fall short this year (perhaps due to building work or a bad season), you can make a "period of grace" election. This lets you keep FHL status for up to two additional years while you get bookings back up to the required level. You must still meet the availability condition.

Averaging Election

If you own more than one FHL property, you can average the letting days across all your qualifying properties. If one property is let for 130 days and another for 80 days, the average is 105 days, so both can qualify. This election applies to all your FHL properties — you cannot cherry-pick which ones to include.

Tax Advantages of FHL Status (2024/25 and Earlier)

Furnished holiday lettings have traditionally enjoyed several tax benefits that standard rental properties do not get. Understanding these is important because many are being withdrawn.

Capital Allowances

FHL owners could claim capital allowances on furniture, equipment, and fixtures. This includes annual investment allowance (AIA) on items like white goods, beds, sofas, and kitchen equipment. For standard rental properties, you can only claim the replacement of domestic items relief, which is less flexible.

Mortgage Interest as a Full Deduction

FHLs were exempt from Section 24 restrictions. This meant you could deduct your full mortgage interest from your rental income rather than receiving only a 20% tax credit. For higher rate taxpayers, this was a significant benefit.

Loss Relief

Losses from an FHL business could be carried forward and set against future FHL profits. While standard rental losses can also be carried forward against future rental income, FHL losses were kept in a separate pool and had more flexible treatment in certain situations.

Capital Gains Tax Reliefs

FHL properties qualified for several CGT reliefs normally reserved for trading businesses:

Business Asset Disposal Relief (formerly Entrepreneurs' Relief): A 10% CGT rate on the first £1 million of qualifying gains, instead of the standard 18% or 24% residential property rates.
Rollover Relief: Defer CGT by reinvesting the proceeds into another qualifying business asset.
Gift Relief: Hold over the gain when gifting the property to another person.

Pension Contributions

Income from FHLs counted as "relevant earnings" for pension purposes. This meant you could use your FHL profits to justify higher pension contributions and get tax relief on those contributions. Standard rental income does not count as relevant earnings.

The Abolition of the FHL Regime

In the Spring Budget 2024, the government announced the abolition of the furnished holiday lettings tax regime. This was confirmed and legislated to take effect from April 2025.

What This Means in Practice

From the 2025/26 tax year onwards:

No more capital allowances on FHL furnishings and equipment. You will use the replacement of domestic items relief instead, the same as any other landlord.
Section 24 applies to mortgage interest on FHLs. You will receive a 20% tax credit instead of a full deduction. If you are a higher rate taxpayer, this increases your tax bill.
No more special CGT reliefs. Business Asset Disposal Relief, Rollover Relief, and Gift Relief will no longer be available for FHL disposals. You pay CGT at the standard residential property rates (18% for basic rate, 24% for higher rate gains).
No pension relevant earnings. FHL income no longer counts towards your pension contribution allowance.
Losses from holiday lets are pooled with your other property income rather than kept separate.

Transitional Rules

There are transitional provisions for capital allowances. If you claimed capital allowances on FHL assets before April 2025, those assets move into a new pool and continue to receive writing-down allowances until fully relieved. You cannot claim AIA on new purchases from April 2025 onwards.

For capital gains, the date of the disposal determines which rules apply. If you sold or contracted to sell before 6 April 2025, the old FHL CGT reliefs still apply. From 6 April 2025 onwards, the standard residential property CGT rules apply.

Anti-Forestalling Rules

The government introduced anti-forestalling measures to prevent landlords from rushing to claim reliefs before the abolition date. Unconditional contracts entered into before 6 March 2024 (the Budget date) that complete after April 2025 can still benefit from the old CGT reliefs. But contracts entered into after that date are subject to the new rules even if structured to appear as though they were earlier.

Is a Holiday Let Still Worth It?

Even without the special tax regime, holiday lets can still be profitable. The rental yields on a well-located holiday property often exceed those on a standard buy-to-let, sometimes significantly so. Peak-season weekly rates in popular areas can equal a month's rent on a standard let.

The tax advantages are gone, but the commercial advantages remain:

Higher gross yields in popular tourist areas
Flexibility to use the property yourself during off-peak periods
Ability to adjust pricing based on demand
Less wear and tear per guest compared to long-term tenants (with good management)

The downsides also remain:

Higher running costs (cleaning, laundry, utilities, management)
Seasonal demand fluctuations
More hands-on management required
Void periods during off-season

Should You Convert to Standard Letting?

Some FHL owners will consider switching to standard long-term letting now that the tax advantages have gone. This makes sense if:

Your holiday let income is inconsistent or seasonal
Management costs are eating into your profits
You do not want the hassle of guest turnover
A reliable monthly rent would suit your finances better

Others will keep their holiday lets running because the gross income justifies the extra work, even with higher tax bills.

Record-Keeping for Holiday Lets

Whether you continue as a holiday let or switch to standard letting, good records are essential. You need to track:

Every booking, including dates, guest names, and amounts
All expenses, clearly categorised
Days the property is available versus occupied versus used personally
Mortgage interest payments (now subject to Section 24)

Accounted can help you stay on top of this. When you connect your bank account, Penny automatically categorises your rental income and expenses. For holiday let owners managing multiple bookings and frequent expenses, this saves hours of manual bookkeeping each month.

Plan Ahead

The abolition of the FHL regime is one of the biggest changes to property taxation in recent years. If you own a furnished holiday let, review your tax position for 2025/26 carefully. Understand how Section 24 affects your mortgage interest, check whether your property income changes your overall tax bracket, and consider whether the property still makes commercial sense.

Start a free trial of Accounted to get a clear picture of your rental income, expenses, and tax position. Penny will keep your records in order so you can make informed decisions about your property business — no spreadsheet wrestling required.

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