Capital Allowances for Furnished Holiday Lets

The furnished holiday lettings regime ended in April 2025, and with it the ability to claim capital allowances on new expenditure. But the pool you built up before then was not wiped out. If you have an existing capital allowances pool, you can continue claiming writing-down allowances on it.

So the position is not "capital allowances are gone". It is closer to: your pool is frozen, not deleted. You keep drawing down what is already in it, and you cannot add anything new. That distinction changes what you should do next.

This is general guidance, not tax advice. Capital allowances interact with your wider tax position — confirm your own treatment with a qualified accountant before filing.

What Changed, and When

The abolition sits in Schedule 5 to the Finance Act 2025. Two operative paragraphs do the structural work:

• Paragraph 2(8) amends ITTOIA 2005 to "Omit Chapter 6 of Part 3 (which defines 'the commercial letting of furnished holiday accommodation')"
• Paragraph 8(4) amends the Capital Allowances Act 2001 to "Omit sections 16 to 17B (which define ordinary UK, or overseas, property business and UK, or EEA, furnished holiday lettings business)"

Removing the definitions removes the category. There is no longer a separate species of property business called a furnished holiday lettings business — a former FHL is now simply part of your UK property business.

HMRC's Property Income Manual gives the commencement precisely:

"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."

The Asymmetry: Your Pool Survives, New Spending Does Not

This is the part worth being precise about, because the two halves pull in opposite directions.

Existing pool — continues. HMRC's policy paper on the abolition states that "where an existing FHL business has an ongoing capital allowances pool of expenditure, they can continue to claim writing-down allowances on that pool". Nothing was clawed back and no balancing charge was triggered by the abolition itself. The pool carries on reducing at the normal writing-down rate.

New expenditure — barred. Once the FHL category disappeared, former holiday lets fell under the ordinary property business rules, and those rules contain a long-standing restriction. Section 35 of the Capital Allowances Act 2001 applies to a person carrying on a UK property business, and subsection (2) states:

"The person's expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house."

That restriction never applied to FHLs, because FHLs sat outside the ordinary property business rules. That was the whole tax advantage. With the FHL carve-out gone, section 35 now applies — so a new sofa, a new oven, or new bedroom furniture for a holiday cottage is not qualifying expenditure.

The practical shape: a shrinking legacy pool that still yields relief each year, with nothing flowing in behind it.

What Replaced It

Former FHLs became eligible for replacement of domestic items relief, in line with other property businesses. HMRC's abolition guidance confirms that any new expenditure incurred on or after the operative date "must be considered under the property business rules".

The two reliefs are not equivalent, and the difference matters:

	Capital allowances (former FHL position)	Replacement of domestic items relief
First purchase of an item	Qualified	Does not qualify — replacements only
Replacing an existing item	Qualified	Qualifies
Improvement on replacement	Qualified in full	Restricted to the cost of a like-for-like equivalent
Fixtures forming part of the building	Often qualified	Generally outside the relief
Kitting out a newly acquired property	Qualified	Does not qualify

The consequential change most owners feel: initial fit-out no longer attracts relief. Buying and furnishing a new holiday let used to generate a substantial first-year capital allowances claim. It no longer does. Replacing the sofa you already had is relievable; buying the first sofa is not.

A worked illustration of the difference:

Replace a worn £900 sofa with a similar £900 sofa — relievable under replacement of domestic items relief. Replace it with a £2,400 corner suite — relief is restricted to the cost of a like-for-like replacement, roughly the £900, not the £2,400. Furnish an empty property you have just bought — no relief on any of it.

Things Worth Checking With Your Accountant

Three areas where the general rule above is not the whole answer, and where the amounts can be material:

1. Whether you actually have a pool, and how much is in it. Many owners with historic FHL businesses have never had the pool quantified, particularly where a property was acquired with fixtures already in place. If a pool exists and has been overlooked, the writing-down allowances are still claimable.

2. Whether all of your expenditure relates to a dwelling-house. The section 35 restriction bites on plant or machinery "for use in a dwelling-house". Where a letting business has assets that are genuinely not in a dwelling-house, the analysis differs. This boundary is fact-sensitive and not something to assume in either direction — it is a question for your accountant on your specific property.

3. The anti-forestalling rule. HMRC's abolition guidance describes a rule to "prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules", stating that "this rule applies from 6 March 2024". If you entered into contracts around that period with the transition in mind, flag it.

What to Do Now

1. Establish your pool balance. Ask your accountant to confirm the written-down value carried forward. This is the asset the abolition left you.
2. Keep claiming. Writing-down allowances on the existing pool continue to be available — they are not automatic, they are claimed.
3. Reclassify future spending. New items are no longer capital allowances candidates. Track replacements separately from first purchases, because only replacements attract relief.
4. Change how you appraise refurbishments. A refit that would once have been substantially relieved may now be largely unrelieved. That changes the return on the spend, not just the tax entry.
5. Revisit acquisition modelling. If your purchase appraisal for a new property assumed a fit-out capital allowances claim, that assumption is no longer valid.
6. Keep the compliance side current. Separate from tax, letting a property carries a certificate and registration burden — our Compliance Checklist Generator produces a tailored list and the Certificate Expiry Tracker keeps the renewal dates in one place.

Where to Go Next

For the whole-picture tax position across income tax, CGT, SDLT and VAT, see our holiday let tax guide. For what the FHL abolition changed more broadly, see our HMRC and furnished holiday lets guide and the furnished holiday let tax changes guide. For the acquisition-side tax, see our holiday let stamp duty guide.

Sources

• Legislation.gov.uk — Finance Act 2025, Schedule 5 (Furnished holiday lettings)
• Legislation.gov.uk — Capital Allowances Act 2001, section 35
• GOV.UK — HMRC Property Income Manual PIM4165: Repeal of Furnished Holiday Lettings rules
• GOV.UK — Abolition of the furnished holiday lettings tax regime

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Capital allowances treatment depends on your specific expenditure history and business structure, 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.