Holiday Let Tax Rules — Furnished Holiday Lettings and What Changed in 2025

What Were Furnished Holiday Lettings (FHL)?

The Furnished Holiday Lettings (FHL) regime was a special tax category for short-term rental properties that met specific occupancy conditions. Properties qualifying as FHL were treated more like trading businesses than investment properties, providing significant tax advantages over standard buy-to-let.

The FHL Regime Was Abolished from April 2025

The Spring Budget 2024 announced the abolition of the FHL tax regime with effect from 6 April 2025. Properties that previously qualified as FHL are now taxed as ordinary property income under the same rules as buy-to-let.

This was a major change. Owners of holiday let properties need to understand what they have lost and how to plan accordingly.

What FHL Owners Have Lost

**Capital allowances:** FHL properties could claim capital allowances on furniture, fittings, and equipment (e.g. sofas, beds, kitchen appliances, TVs). Standard buy-to-let cannot claim capital allowances — it uses the replacement of domestic items relief instead (which only covers replacements, not original purchases).

**Finance cost deduction:** FHL was exempt from Section 24 restrictions. Mortgage interest was fully deductible as a trading expense. From April 2025, FHL properties are subject to the same Section 24 restrictions as standard buy-to-let.

**Pension contribution relief:** FHL profits counted as “learned income” for pension contribution purposes, allowing owners to make higher pension contributions. Standard property income does not count as earned income.

**CGT reliefs:** FHL properties qualified for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), taxing gains at 10% rather than 18%/24%. They could also qualify for Gift Relief (holdover relief) and Business Asset Rollover Relief. These CGT advantages are now lost.

**Losses:** FHL losses could be set against general income. Standard property losses can only be set against other property income.

What Remains the Same

• Income is still taxed as property income (not trading income)
• Replacement of domestic items relief is available (replacing like-for-like items)
• Standard allowable expenses (agent fees, utilities, advertising, cleaning) remain deductible

Impact on Short-Term Let Operators

Operators who ran FHL properties profitably under the old regime may now find their tax position significantly worsened:

• Higher tax bills due to Section 24 restrictions if mortgaged
• No capital allowances on new equipment
• Higher CGT on eventual sale (24% vs 10%)

Some operators may find the numbers no longer work, particularly in higher-cost areas where mortgages are large and yields are compressed.

Council Tax and Business Rates

Holiday let properties are assessed for business rates (not council tax) if they are available to let for at least 140 days and actually let for at least 70 days per year. Properties meeting these conditions may qualify for Small Business Rate Relief, potentially paying no rates at all.

With the FHL regime gone, owners should review whether their occupancy levels still meet the business rates threshold, as council tax may now be higher than business rates for some properties.

Planning

Owners of holiday let properties should review their position with a specialist tax adviser, particularly regarding:

• Whether the Section 24 impact makes a limited company structure worthwhile
• Whether any capital allowance claims should have been made before abolition
• The CGT position on eventual disposal