Furnished Holiday Let Tax Changes 2025: What UK Hosts Need to Know
The furnished holiday lettings (FHL) tax regime — one of the biggest tax advantages for UK short-term let hosts — was abolished on 6 April 2025. If you own a holiday let, this changes how you're taxed on rental income, mortgage interest, and capital gains.
Here's what the FHL regime was, what changed, and what you should do now.
This is general guidance, not tax advice. Speak to a qualified accountant for your specific situation.
What Was the FHL Tax Regime?
The FHL regime gave qualifying furnished holiday lets a set of tax advantages not available to standard buy-to-let landlords. To qualify, a 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 let to the same person for more than 31 consecutive days (for more than 155 days total)
Properties meeting these tests were treated as a trade for tax purposes, unlocking several benefits.
What Changed in April 2025?
The UK Government announced the abolition of the FHL regime in the Spring Budget 2024, with the change taking effect from 6 April 2025 for income tax and 6 April 2025 for capital gains tax.
The key changes:
1. Mortgage Interest Relief
Before: FHL owners could deduct mortgage interest as a business expense, reducing taxable profit pound for pound.
Now: Holiday lets are treated the same as standard residential lets. Mortgage interest relief is restricted to a basic rate (20%) tax credit. Higher-rate taxpayers lose the most — a landlord paying 40% tax now gets only 20% relief on mortgage interest instead of 40%.
2. Capital Gains Tax
Before: FHL properties qualified for Business Asset Disposal Relief (formerly Entrepreneurs' Relief), meaning gains up to £1 million were taxed at just 10%. Rollover relief and holdover relief were also available.
Now: Holiday let disposals are taxed at standard residential property CGT rates — 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Business Asset Disposal Relief, rollover relief, and holdover relief no longer apply.
3. Capital Allowances
Before: FHL owners could claim capital allowances on furniture, fixtures, and equipment — deducting the full cost of items like beds, sofas, and kitchen appliances.
Now: Holiday lets can only claim the Replacement Domestic Items Relief, which allows a deduction when you replace a domestic item (not the original purchase). This is the same treatment as standard residential lets.
4. Pension Contributions
Before: FHL income counted as "relevant UK earnings" for pension contribution purposes, allowing hosts to make larger tax-relieved pension contributions.
Now: FHL income no longer counts as relevant earnings. This reduces the pension contributions you can make if the holiday let was your primary source of income.
5. Loss Relief
Before: Losses from one FHL property could be offset against profits from another FHL property (but not against other income).
Now: FHL losses are treated the same as standard property losses — they can only be carried forward against future property income from the same property business.
Does This Affect VAT?
The FHL tax changes do not alter the VAT position for holiday lets. Short-term holiday accommodation remains subject to VAT if your total taxable turnover exceeds the VAT registration threshold (currently £90,000 from 1 April 2024). The rate remains 20% on holiday let income above the threshold.
If you were already VAT-registered because of FHL turnover, check with your accountant whether the new tax treatment changes your overall position.
What Should Holiday Let Hosts Do Now?
Review your numbers
Run the figures with your accountant under the new rules. The restricted mortgage interest relief alone can significantly increase your tax bill, particularly if you're a higher-rate taxpayer with a large mortgage.
Consider your ownership structure
Some hosts are reviewing whether a limited company structure makes more sense under the new rules, since companies can still deduct mortgage interest as a business expense. However, transferring property into a company triggers CGT and stamp duty — the costs may outweigh the benefits. Get professional advice before restructuring.
Check your compliance
Tax changes don't remove your compliance obligations. Every holiday let still needs gas safety certificates, EICR, fire risk assessments, EPC, insurance, and (depending on location) council registration or licensing. Use our free Compliance Checklist Generator to check what your property needs.
Keep records
HMRC may query historic FHL claims during the transition period. Keep records of your qualifying days (available, let, and long-let calculations) for at least 6 years after the end of the relevant tax year.
Timeline of Key Dates
| Date | What Happened |
|---|---|
| March 2024 | Spring Budget announces FHL abolition |
| 6 April 2025 | FHL regime ends for income tax and CGT |
| 2025–26 tax year | First full year under new rules |
| January 2027 | First self-assessment deadline under new rules (for 2025–26) |
The Bigger Picture
The FHL abolition is part of a broader tightening of regulation around short-term lets in the UK. England's mandatory registration scheme is expected in 2026, Scotland already requires short-term let licences, and the Fire Safety Act 2021 has clarified fire safety standards across all nations.
The tax landscape and the regulatory landscape are both shifting. Hosts who stay on top of both will be better positioned than those who don't.
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