The Furnished Holiday Lettings (FHL) tax regime — which gave short-term holiday let landlords significant tax advantages over regular residential landlords — was abolished from 6 April 2025. This was announced in the Autumn Budget 2024 and affects thousands of property owners across the UK.
If you own a furnished holiday let, your property income is now taxed the same way as any other residential rental. Here’s what changed and what you need to do.
What Was the FHL Regime?
Since the 1980s, properties that qualified as furnished holiday lettings received special tax treatment — closer to running a business than being a landlord. To qualify, a property had to be:
- Available for letting 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 (with a 155-day limit on longer lets)
Properties meeting these tests were treated as a trade for several tax purposes, giving owners advantages that regular buy-to-let landlords didn’t get.
What Landlords Have Lost
1. Full Mortgage Interest Relief
Before: FHL owners could deduct mortgage interest as a business expense against rental income, reducing taxable profit pound for pound.
Now: Mortgage interest is restricted to a 20% tax credit, the same as other residential lettings. For higher-rate (40%) and additional-rate (45%) taxpayers, this is a substantial hit.
Example: A higher-rate taxpayer with £20,000 rental income and £12,000 mortgage interest:
| FHL regime (old) | Standard letting (new) | |
|---|---|---|
| Taxable profit | £8,000 | £20,000 |
| Tax at 40% | £3,200 | £8,000 |
| Less 20% credit on interest | — | −£2,400 |
| Tax payable | £3,200 | £5,600 |
That’s £2,400 more tax per year on the same property with the same income and costs.
2. Capital Allowances on Furniture and Equipment
Before: FHL owners could claim capital allowances (including the Annual Investment Allowance) on furniture, white goods, and fixtures. This gave immediate tax relief on the full cost of furnishing the property.
Now: Only the Replacement of Domestic Items Relief is available — you can deduct the cost of replacing furniture and appliances on a like-for-like basis, but not the initial purchase.
3. Business Asset Disposal Relief (BADR) on Sale
Before: Selling an FHL could qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), giving a 10% CGT rate on gains up to the £1 million lifetime limit.
Now: Standard residential property CGT rates apply — 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. No BADR is available.
Example: A £150,000 capital gain on selling a holiday let:
| With BADR (old) | Without BADR (new) | |
|---|---|---|
| CGT rate | 10% | 24% |
| Tax payable | £15,000 | £36,000 |
4. Pension-Relevant Earnings
Before: FHL profits counted as earnings for pension contribution purposes. This was valuable for people whose only income was from holiday lets — it allowed them to make tax-relieved pension contributions.
Now: Rental income is not relevant earnings. If you have no other employment or self-employment income, your pension contribution limit drops to the basic £3,600 gross per year.
5. Loss Relief Flexibility
Before: FHL losses could only offset future FHL profits, but the trade treatment meant they were ring-fenced within a more favourable framework. Capital losses on FHL disposals followed business asset rules.
Now: Losses follow standard property income rules. In practice, the loss offset rules are broadly similar for income losses, but the removal of BADR and capital allowances means there are likely to be fewer losses to offset in the first place.
Transitional Rules
HMRC has provided limited transitional provisions:
- Capital allowances already claimed are not clawed back. Writing-down allowances (WDA) on existing capital allowance pools continue until the pool is fully written down.
- BADR: Gains accrued up to 5 April 2025 may still qualify for BADR if the property is sold within 3 years of ceasing to be an FHL (i.e., by 5 April 2028). You must have met the FHL conditions for at least 2 of the last 5 tax years ending with 2024-25. This is an important window for those considering selling.
- Overlap relief: If you had overlap profits from when the FHL was treated as a trade, these can be set against final year profits.
What You Should Do Now
Review Your Mortgage Structure
With full interest relief gone, the effective cost of mortgage debt has increased significantly for higher-rate taxpayers. Consider:
- Whether incorporation (transferring the property to a limited company) makes sense — companies can still deduct mortgage interest in full, though there are CGT and SDLT costs on transfer
- Whether paying down debt from other savings is now more tax-efficient
- Whether the property still generates a positive after-tax return
Reassess Whether Short-Term Letting Is Still Worth It
FHL properties typically have higher running costs than standard buy-to-lets — cleaning, laundry, management fees, seasonal marketing, utilities, and higher wear and tear. Without the tax advantages, the premium income from short-term letting needs to cover these costs and compensate for the extra hassle.
Run the numbers. In some cases, switching to a standard 6-month or 12-month assured shorthold tenancy may actually deliver better after-tax returns with less work.
Consider Selling Within the BADR Window
If you’re planning to sell your holiday let in the next few years, doing so before 6 April 2028 could save thousands in CGT through the BADR transitional rule. This is especially valuable if you have a large unrealised gain.
Update Your Tax Planning
- Tell your accountant about the regime change (they should already know, but confirm)
- Adjust your self-assessment budgeting — your tax bill will be higher from 2025-26 onwards
- Check whether your pension contribution capacity has been affected
- Review whether any other reliefs (such as Rent-a-Room Relief if you also let part of your home) might apply to any of your properties
Properties in Scotland and Wales
The FHL regime applied UK-wide, so the abolition affects holiday lets in Scotland and Wales equally. However, note that:
- Scotland uses LBTT (not SDLT) for property transactions, with different rates for the additional dwelling supplement
- Wales uses LTT, also with its own additional property rates
- Both Scotland and Wales may develop devolved policy responses over time, though none have been announced
The Bigger Picture
The removal of the FHL regime is part of a broader trend of reducing tax advantages for property investors — following the mortgage interest restriction (phased in 2017–2020) and repeated increases to the additional dwelling surcharge. The government’s stated aim is to level the playing field between holiday lets and long-term residential rentals, and to address concerns about holiday lets reducing housing supply in tourist areas.
For affected landlords, the practical impact depends on your tax rate, mortgage level, and whether you were planning to sell. The BADR transitional window is the most time-sensitive element — if it’s relevant to you, take advice sooner rather than later.