The Furnished Holiday Let (FHL) tax regime has been abolished. From 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax, short-term holiday let properties are no longer treated differently from standard residential lettings. If you own a holiday let in the UK, this change affects your tax bill in ways that demand immediate attention.
This guide explains what has changed, what it means for your income, capital gains, pension contributions, and property ownership structure, and what steps you can take right now.
What Was the FHL Regime?
The Furnished Holiday Let regime was a special set of tax rules that treated qualifying short-term holiday properties like a trade rather than an investment. To qualify, a property had to be available for letting for at least 210 days per year and actually commercially let for a minimum of 105 days.
Landlords who met these conditions benefited from a generous package of tax advantages, including full mortgage interest deductions, business-level Capital Gains Tax reliefs, capital allowances on furniture and fittings, and the ability to use FHL profits as “relevant earnings” for pension contributions. These advantages made FHL properties significantly more tax-efficient than standard buy-to-let investments.
That preferential treatment is now gone.
What Has Changed From April 2025?
Mortgage Interest Relief
Previously, FHL landlords could deduct their full mortgage interest against rental income before calculating taxable profit. For a higher-rate taxpayer, that meant a 40% tax saving on every pound of interest paid.
From 6 April 2025, this deduction no longer applies. Instead, landlords receive only a 20% tax credit on mortgage interest, in line with standard residential landlord rules under Section 24. For higher and additional-rate taxpayers, this represents a direct and significant increase in their tax liability.
Capital Gains Tax Reliefs
FHL landlords previously had access to three powerful CGT reliefs: Business Asset Disposal Relief (BADR), which taxed qualifying gains at just 10% up to a £1 million lifetime limit; rollover relief, which allowed proceeds from a sale to be reinvested in another qualifying business asset without triggering an immediate CGT charge; and hold-over relief for gifts.
All of these have been removed. From 6 April 2025, disposals of former FHL properties are taxed at the standard residential property CGT rates: 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. There are no transitional arrangements, and the clock started from the date of abolition regardless of how long a property was operated as an FHL.
Capital Allowances
Under the FHL regime, landlords could claim plant and machinery capital allowances on furniture, fixtures, and equipment purchased for the property. This allowed the full cost of a new sofa, bed, or kitchen appliance to be written off against taxable profits in the year of purchase.
From April 2025, no new capital allowances claims can be made. The replacement for new expenditure is the Replacement of Domestic Items Relief, which allows a deduction only for the cost of replacing an existing item on a like-for-like basis. Initial purchases are not covered. Importantly, any existing capital allowances pools established before 5 April 2025 can continue to attract Writing Down Allowances and must be carried forward correctly.
Pension Contributions
One of the less-discussed but financially significant benefits of the FHL regime was the treatment of FHL profits as “relevant UK earnings” for pension contribution purposes. This allowed landlords to make pension contributions up to the level of their FHL income and receive full tax relief.
From 6 April 2025, FHL profits no longer count as relevant earnings. If you have no other earned income, your tax-relieved pension contributions may now be capped at just £3,600 gross per year. Landlords who were using FHL profits to support substantial pension planning should review their position urgently with a qualified adviser.
Joint Ownership and Profit Splitting
The FHL regime included a specific exemption from the standard joint property income rules. This allowed married couples and civil partners to split profits in whatever proportion was most tax-efficient, even if ownership was held equally.
That flexibility has ended. From 6 April 2025, jointly held FHL properties default to a 50:50 income split between spouses and civil partners. If you wish to reflect a different ownership split for tax purposes, you must hold the property in genuinely unequal shares and submit a Form 17 to HMRC within 60 days of signing, supported by a formal Declaration of Trust as evidence. HMRC will not accept backdated forms.
Anti-Forestalling Rules
The government anticipated that some landlords might try to lock in FHL tax reliefs by entering into unconditional contracts before the abolition date. To prevent this, anti-forestalling rules were introduced with effect from 6 March 2024, the date of the Spring Budget announcement.bishopfleming+3
Any contract exchanged on or after 6 March 2024 where completion occurs after 5 April 2025 will not benefit from BADR, rollover relief, or hold-over relief, particularly where the transaction involves connected parties. If you are in the process of selling or transferring a former FHL property, you must take professional advice on how these rules apply to your specific situation.uklandlordtax+1
What Happens to Existing FHL Losses?
If your FHL business was running at a loss before abolition, those losses are not wasted. Under the transitional rules, unrelieved FHL losses can be carried forward and set against future profits of the wider UK property business, including income from standard residential lettings.rentalbux+1
However, UK and overseas property businesses remain ring-fenced from each other. Losses from a UK former FHL property cannot be offset against overseas property income, and vice versa. Keep accurate records of any carried-forward losses to ensure they are claimed correctly in future tax returns.
Making Tax Digital: What Comes Next
The abolition of the FHL regime also intersects with the rollout of Making Tax Digital for Income Tax (MTD for IT). From 6 April 2026, landlords with gross property income above £50,000 must report under MTD. The threshold drops to £30,000 from 6 April 2027, with a further reduction to £20,000 planned for 2028.
Under MTD, there is no separate FHL category. All UK property income, including former holiday lets, is reported as a single property business. Landlords should begin updating their record-keeping systems now to ensure they are MTD-ready ahead of the relevant threshold date.
VAT and Inheritance Tax: No Change
For landlords concerned about VAT, the position remains unchanged. Holiday accommodation is standard-rated for VAT purposes under the VAT Act 1994, and this was never part of the FHL regime. If, however, you transition to providing long-term residential accommodation following the abolition, those supplies would become exempt from VAT.albertgoodman+1
On Inheritance Tax, HMRC had already confirmed that FHL properties do not generally qualify for Business Property Relief. The abolition does not change the IHT position for most landlords.
How UK Property Tax Accountants Can Help
The abolition of the FHL regime has created a materially different tax landscape for short-term let landlords, one that demands a thorough review of income tax planning, CGT exposure, pension strategy, and ownership structure. At UK Property Tax Accountants, we specialise exclusively in property taxation and work with FHL landlords, portfolio landlords, and holiday let investors across the UK.
Our team can help you:
- Reassess your income tax position following the removal of full mortgage interest relief and model the impact on your annual tax bill
- Review your CGT exposure on any planned property disposal and identify whether any transitional reliefs remain available
- Advise on restructuring joint ownership arrangements and prepare Form 17 submissions correctly and on time
- Evaluate whether transferring your holiday let portfolio into a limited company structure makes financial sense for your circumstances
- Ensure your existing capital allowances pools are carried forward accurately and that Replacement of Domestic Items Relief is claimed wherever eligible
- Prepare you for MTD for Income Tax compliance well in advance of the relevant deadlines
Whether you hold one holiday cottage or a portfolio of short-term lets, the changes introduced in April 2025 mean that specialist property tax advice is no longer optional. Get in touch with UK Property Tax Accountants today to arrange a review of your position.
Frequently Asked Questions
Does the FHL abolition apply to properties in Scotland and Wales as well as England?
Yes. The abolition applies UK-wide for income tax and CGT purposes, effective from 6 April 2025. The rules apply regardless of where in the UK the property is located.
Can I still use Airbnb or similar platforms for my holiday let?
Yes. You can continue to let your property on short-term rental platforms. The abolition changes your tax treatment, not your ability to operate. However, your income from those lettings will now be taxed as standard property income
What if my property was in a capital allowances pool before April 2025?
You can continue to claim Writing Down Allowances on any existing pool established before 5 April 2025. However, no new items purchased after the abolition date can be added to a capital allowances pool.
I was planning to sell my FHL. Can I still get Business Asset Disposal Relief?
Only if the sale completed before 6 April 2025 and was not caught by the anti-forestalling rules introduced from 6 March 2024. For any disposal completing after 5 April 2025, BADR is no longer available.
Will my holiday let now count as a residential property for Stamp Duty Land Tax purposes?
For SDLT, the question of whether a property is residential has always been determined separately from the FHL regime. The abolition does not automatically change SDLT classification, but you should seek advice if you are purchasing or restructuring a property.
