Furnished Holiday Let Tax Changes — What Landlords Must Know After April 2025

The End of the FHL Regime

The Furnished Holiday Lettings (FHL) tax regime was abolished by the UK government with effect from **6 April 2025**. Properties that previously qualified as Furnished Holiday Lettings are now treated as standard UK residential letting property for all Income Tax, Capital Gains Tax, and pension contribution purposes.

This change was announced in the 2024 Spring Budget and confirmed in subsequent Finance Act provisions. It affects landlords across England, Scotland, Wales, and Northern Ireland who let short-term holiday accommodation.

What the FHL Regime Previously Offered

Before abolition, FHL landlords benefited from several significant tax advantages:

• **Full mortgage interest deduction** — FHLs were exempt from the Section 24 restriction that limits individual landlords to a 20% basic rate credit on finance costs. FHL landlords could deduct all mortgage interest against profit.
• **Capital allowances** — FHL landlords could claim capital allowances (plant and machinery) on furniture and equipment, going beyond the replacement of domestic items relief available to standard landlords.
• **Business asset disposal relief (BADR)** — Gains on selling an FHL property could qualify for the 10% CGT rate available to business assets (subject to conditions), rather than the 24% higher rate for residential property gains.
• **Pension contributions** — FHL income counted as "relevant UK earnings" for pension contribution purposes, allowing higher pension contributions.
• **Loss relief** — FHL losses could be offset against other income categories, unlike standard property losses which can only be carried forward against future rental profits.

What Changes From April 2025

From **6 April 2025**, all of these advantages ceased. Former FHL properties are now treated exactly like any other residential letting:

• **Section 24 applies** — mortgage interest gives only a 20% basic rate credit, not a full deduction.
• **No capital allowances** on new expenditure — only replacement of domestic items relief applies.
• **CGT at residential rates** — gains are taxed at 18% (basic rate) or 24% (higher rate) for residential property.
• **FHL income no longer counts as relevant UK earnings** for pension contribution purposes.
• **Losses** are ring-fenced within the UK property business and can only be carried forward against future rental profits.

Capital Allowance Pools — Transition Rules

HMRC published transitional rules for capital allowance pools that existed at the point of abolition. Unrelieved expenditure in existing pools does not simply disappear — landlords can continue to claim the pool balance as the asset declines in value. However, no new assets can be added to an FHL capital allowances pool after 5 April 2025.

Planning Considerations for 2026

Former FHL landlords need to review their tax position carefully for 2025/26 (the first full tax year post-abolition):

• **Mortgage interest** — model the impact of Section 24 on profitability. Higher-geared properties may now be generating taxable profits that substantially exceed actual cash return.
• **CGT planning** — if disposal was already being considered, the loss of BADR makes the timing more complex. Seek specialist advice.
• **Structure** — some former FHL landlords are exploring whether incorporation (operating through a limited company) provides a better outcome, since companies are not subject to Section 24 and pay Corporation Tax at 19%–25% on profits.

Use our [rental income tax calculator](/rental-income-tax-calculator) to model the tax impact of your former FHL property under the new rules and compare outcomes across different scenarios.