What happened to the furnished holiday lettings tax rules?

Full answer

The FHL regime previously gave landlords of qualifying short-term holiday let properties several tax advantages not available to ordinary long-term residential landlords, but these advantages ended when the regime was abolished, aligning holiday let taxation much more closely with standard rental property rules. **What the FHL regime used to offer** Under the old rules, a property qualifying as a Furnished Holiday Letting (meeting specific letting-day and availability tests) benefited from full mortgage interest deductibility against rental profit (rather than the restricted Section 24 treatment applying to ordinary residential lets), access to capital allowances on furnishings and equipment, the ability to count profits as 'relevant earnings' for pension contribution purposes, and more favourable Capital Gains Tax treatment on sale, including potential access to Business Asset Disposal Relief. **What changed from April 2025** The FHL regime was abolished, meaning former qualifying holiday let properties are now taxed under the SAME rules as any other residential letting property -- mortgage interest is now only available as a basic-rate tax credit under Section 24 rules (rather than a full deduction against rental income), capital allowances on furnishings are generally no longer available in the same way, and profits no longer automatically count as relevant earnings for pension contribution purposes. **Effect on landlords with mortgages** Holiday let landlords with significant mortgage borrowing are among those most affected by the change, since losing full mortgage interest deductibility (replaced by the Section 24 basic-rate credit) can meaningfully increase their taxable profit and therefore their tax bill, particularly for higher-rate taxpayers, mirroring the same impact this restriction has long had on standard buy-to-let landlords. **Capital Gains Tax on eventual sale** The more favourable CGT treatment previously available to FHL properties (including potential Business Asset Disposal Relief eligibility) is also no longer available for gains arising after the regime's abolition -- holiday let properties are now generally subject to the same residential property CGT rates as any other rental property, which are higher than the rates that could apply to other asset types under BADR. **Worked example** A landlord with a coastal holiday cottage, previously qualifying as an FHL with a significant mortgage, used to deduct the FULL mortgage interest from their rental income before calculating taxable profit. Since the regime's abolition, they instead calculate taxable profit WITHOUT deducting mortgage interest, then claim a basic-rate (20%) tax credit against their final tax bill instead -- for a higher-rate taxpayer, this generally results in a higher overall tax bill than under the old FHL rules, all else being equal. **Practical tip** If you own a former FHL property, review your overall tax position under the new rules (particularly if you have significant mortgage borrowing), since the combined loss of full mortgage interest relief, capital allowances, and favourable CGT treatment can substantially change the profitability of holiday letting compared with under the old regime -- take specialist property tax advice if the numbers look materially worse than before.

Try the calculator