Can I use the Rent a Room Scheme for a former Furnished Holiday Letting?

Full answer

With Furnished Holiday Lettings (FHL) tax status abolished from 6 April 2025, many owners are asking whether the Rent a Room Scheme could offer an alternative simplified tax treatment -- but the two schemes serve fundamentally different situations and cannot generally be substituted for each other. **What Rent a Room actually covers** The Rent a Room Scheme lets you earn up to £7,500 a year (or £3,750 each if you share the income with a partner or joint owner) completely tax-free from letting furnished accommodation that forms part of your own main residence -- for example, a spare bedroom to a lodger, or a self-contained annexe that is part of the same building you live in. Crucially, the letting must be within a home where you also live for at least part of the letting period. **Why most former FHLs cannot use it** A classic Furnished Holiday Letting -- a separate holiday cottage, an entirely self-contained let-out property, or a property you do not live in yourself -- does not qualify for Rent a Room relief, because it is not part of your own home. Since FHL status was abolished, income from these properties from April 2025 onwards is simply taxed as normal UK property income, following the same rules as any other rental property (including the loss of the special FHL capital allowances, pension-relevant earnings treatment, and CGT reliefs that used to apply). **The narrow exception** Rent a Room could still apply if you occasionally let a room or annexe within your own main home to holidaymakers on a short-term basis -- this was always possible even before the FHL rules existed, and continues unaffected by FHL abolition, provided the £7,500 threshold and "main residence" test are met. **Worked example** Sarah owns a separate holiday cottage in Cornwall that she rents out via Airbnb but does not live in herself. Before April 2025 this qualified as an FHL, with generous capital allowances and mortgage interest treated as a full expense. From April 2025, this income is simply taxed as ordinary property income, with mortgage interest now restricted to a 20% tax credit rather than full deduction (as under Section 24 rules for other landlords) -- and Rent a Room is not available to her at all because she does not live in the cottage. By contrast, her neighbour Tom lives in a large house and lets out a self-contained annexe attached to his home to holidaymakers for short breaks throughout the year, earning £6,000 a year from it -- because the annexe is part of his own home, he can use Rent a Room relief and pay no tax on that income at all. **What former FHL owners should check** If your former FHL property is genuinely separate from your main home, plan for normal property income tax treatment (including the mortgage interest restriction) rather than assuming any transitional relief carries you into Rent a Room -- the two reliefs address entirely different letting arrangements.

Try the calculator

More answers

• What happens to unused Furnished Holiday Lettings losses after the FHL rules were abolished?