Furnished Holiday Let Allowable Expenses 2026

Start with the awkward part: "furnished holiday let" is no longer a tax category. Schedule 5 to the Finance Act 2025 removed the definition, and from April 2025 a holiday let is simply part of your UK property business. So the question "what are the allowable expenses for a furnished holiday let" now has the same answer as it does for any other let residential property.

The single biggest consequence for income-tax payers: mortgage interest is no longer a deductible expense. It is relieved instead as a basic-rate tax reduction, which is a materially worse outcome for higher-rate taxpayers and changes your taxable profit rather than just your tax bill. If you hold the property through a limited company, this particular change doesn't apply to you — see the corporation-tax carve-out below.

This is general guidance, not tax advice. Expense treatment depends on your circumstances — confirm your position with a qualified accountant before filing.

What Changed

Paragraph 2(8) of Schedule 5 to the Finance Act 2025 amends ITTOIA 2005 to "Omit Chapter 6 of Part 3 (which defines 'the commercial letting of furnished holiday accommodation')."

HMRC's Property Income Manual gives the timing:

"The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains."

Much of the guidance still circulating online was written before this and describes the old regime. If a source tells you a holiday let can deduct full mortgage interest or claim capital allowances on new furniture, it is out of date.

Mortgage Interest: The Change That Costs Most

Under the ordinary property business rules — section 272A of ITTOIA 2005, the finance cost restriction — interest on a loan relating to residential property is not deducted from rental profits:

"In calculating the profits of a property business for income tax purposes for the tax year 2020-21 or any subsequent tax year, no deduction is allowed for costs of a dwelling-related loan." (s.272A(4))

Instead, HMRC's guidance confirms the replacement mechanism, a basic-rate tax reducer:

"The reduction is the basic rate value (currently 20%) of the lower of: finance costs"

The distinction between a deduction and a tax reducer is not cosmetic. A deduction reduces your taxable profit. A tax reducer leaves the profit alone and knocks a fixed percentage off the tax due.

This restriction is income-tax-only. Section 272A(5) carves out companies: "Subsections (1) to (4) do not apply in relation to calculating the profits of a property business for the purposes of charging a company to income tax…" A furnished holiday let held inside a limited company continues to deduct mortgage interest as a normal expense — the finance-cost reducer applies to individual and joint owners paying income tax, not to corporation-tax payers. If you operate through a company, confirm which regime applies to you before assuming this section changes your position.

An illustration for a higher-rate taxpayer:

Rental income £30,000, running costs £6,000, mortgage interest £9,000.

Old FHL treatment: profit = £30,000 − £6,000 − £9,000 = £15,000. Tax at 40% = £6,000.

Current treatment: profit = £30,000 − £6,000 = £24,000. Tax at 40% = £9,600, less a 20% reducer on the £9,000 interest (£1,800). Tax = £7,800.

Same cash position, £1,800 more tax. And note the second-order effect: taxable profit rose from £15,000 to £24,000. That inflated profit figure is what counts for higher-rate thresholds, the High Income Child Benefit Charge, and personal allowance tapering — so the real cost is often larger than the headline difference.

What Is Still Deductible

Ordinary revenue expenses incurred wholly and exclusively for the property business remain deductible:

• Letting agent and platform commission, booking fees, and payment processing charges
• Cleaning and laundry, including changeover cleaning and linen hire
• Utilities — electricity, gas, water, broadband — where you bear them
• Council tax or business rates on the property
• Insurance — buildings, contents, public liability, employer's liability
• Repairs and maintenance that restore the property rather than improve it
• Safety compliance costs — gas safety checks, electrical installation condition reports, fire risk assessments, legionella assessments, alarm servicing, PAT testing
• Professional fees — accountancy for the property business, and letting-related legal fees
• Advertising and photography
• Garden maintenance, window cleaning, waste collection
• Replacement of domestic items relief — see below

Safety and certification costs are ordinary deductible running costs, which is worth knowing because they are also non-negotiable. Our Compliance Checklist Generator sets out which apply to your property, and the Certificate Expiry Tracker keeps renewals visible so you are neither non-compliant nor paying for emergency call-outs.

What Is Not Deductible

• Mortgage interest — 20% tax reducer instead, as above
• Capital expenditure — the property itself, extensions, structural work
• Initial fit-out — furnishing a property for the first time attracts no relief
• Improvements — upgrading beyond the original standard
• Your own labour — you cannot pay yourself for changeover cleaning and deduct it
• Private-use portions — see apportionment below
• New capital allowances on plant and machinery used in a dwelling-house — barred by section 35 of the Capital Allowances Act 2001, which restricts expenditure on plant or machinery "for use in a dwelling-house"; where expenditure genuinely doesn't relate to a dwelling-house the restriction doesn't apply, and mixed use requires a just-and-reasonable apportionment. An existing pool from the FHL era continues to yield writing-down allowances. Our capital allowances for furnished holiday lets guide covers both the scope and that survival in detail.

Replacement of Domestic Items Relief

This replaced capital allowances for former holiday lets, and it is narrower in two specific ways.

It is replacement-only. Buying a sofa for a property that did not have one gets no relief. Replacing an existing sofa does.

It is like-for-like. If you replace a basic item with a materially better one, relief is limited to the cost of an equivalent replacement rather than what you actually spent. Replacing a £900 sofa with a £2,400 corner suite gets you relief around the £900 mark.

Qualifying items are movable domestic items — furniture, furnishings, household appliances, kitchenware. Fixtures that form part of the building generally sit outside the relief and are dealt with under repairs or capital instead.

The Repairs and Improvements Line

The most commonly disputed boundary, and worth getting right because repairs are deductible immediately while improvements are not deductible at all.

The rough test is whether the work restores the property to its previous condition or makes it better than it was.

Likely a repair (deductible)	Likely an improvement (not deductible)
Repainting existing decoration	Fitting new built-in wardrobes where none existed
Replacing broken roof tiles	Adding a conservatory or extension
Replacing a worn-out kitchen with a similar-standard kitchen	Replacing a basic kitchen with a high-specification one
Fixing damaged guttering	Converting a loft
Replacing single-glazed units with modern equivalents	Adding a hot tub or swimming pool

Note the third row in each column: replacing like with like is a repair even where modern materials are inevitably better than the originals. Upgrading the specification is where it tips into improvement.

Apportionment for Private Use

If you use the property yourself, you cannot deduct expenses relating to your own occupation. Expenses need apportioning on a just and reasonable basis — typically by nights let versus nights of private use across the year.

Keep the occupancy record that supports the split. If HMRC queries the apportionment, a booking calendar showing let nights, private nights, and genuinely vacant nights is what answers it. Vacant nights when the property was genuinely available to let generally sit on the business side, but that is exactly the point that gets challenged, so the records need to distinguish "empty and available" from "empty because we were using it".

Action Checklist

1. Stop treating mortgage interest as an expense — it belongs in the finance-cost reducer, not the expense list
2. Re-check your taxable profit against higher-rate thresholds, child benefit charge, and personal allowance tapering
3. Separate replacements from first purchases in your records — only replacements attract relief
4. Keep repairs and improvements in distinct categories from the outset
5. Maintain an occupancy calendar distinguishing let, private, and available-but-vacant nights
6. Retain invoices for all compliance and certification spend — deductible and required
7. Confirm whether you hold a legacy capital allowances pool still yielding writing-down allowances
8. Review whether your structure still suits the current rules with an accountant

Where to Go Next

For the whole tax picture across income tax, CGT, SDLT and VAT, see our holiday let tax guide. For what the abolition changed and the decision points it created, see our HMRC and furnished holiday lets guide and the furnished holiday let tax changes guide. For the council tax and business rates split, see our holiday let business rates guide.

Sources

• Legislation.gov.uk — Finance Act 2025, Schedule 5 (Furnished holiday lettings)
• Legislation.gov.uk — Income Tax (Trading and Other Income) Act 2005, section 272A (finance cost restriction)
• Legislation.gov.uk — Capital Allowances Act 2001, section 35
• GOV.UK — HMRC Property Income Manual PIM4165: Repeal of Furnished Holiday Lettings rules
• GOV.UK — Changes to tax relief for residential landlords

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Expense treatment depends on your specific circumstances and the figures above are illustrative. This is general guidance based on the published legislation and HMRC guidance, not tax advice — confirm your position with a qualified accountant before filing.