Answers · UK 2025/26

What changed for Furnished Holiday Lets from April 2025?

From 6 April 2025 the Furnished Holiday Lettings (FHL) tax regime was abolished. FHL properties are now taxed the same as standard residential rental property -- mortgage interest gets only a 20% tax credit instead of full deduction, capital allowances on furnishings are lost in favour of the replacement of domestic items relief, and profits no longer count as relevant earnings for pension contribution purposes.

Last updated: 1 July 2026Last reviewed: 1 July 2026How we verify

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For decades, properties that qualified as Furnished Holiday Lettings (FHL) -- broadly, furnished properties available for short-term holiday letting for at least 210 days a year and actually let for at least 105 days -- enjoyed a much more favourable tax regime than ordinary residential rentals. That special treatment ended on 6 April 2025. **What FHL owners lose** 1. **Full mortgage interest deduction**: previously, FHL owners could deduct 100% of mortgage interest as a business expense against rental profit. From April 2025, FHL properties are subject to the same Section 24 restriction as standard buy-to-lets -- interest only qualifies for a 20% basic-rate tax credit, not a full deduction. This is a significant hit for higher-rate taxpayers with mortgaged holiday lets. 2. **Capital allowances**: FHL owners could previously claim capital allowances (including the Annual Investment Allowance) on furniture, equipment, and fixtures. From April 2025, this is replaced by the standard residential lettings "replacement of domestic items relief," which only allows a deduction when an item is actually replaced, not on the original purchase. 3. **Capital Gains Tax reliefs**: FHL profits previously counted as a trade for CGT purposes, giving access to Business Asset Disposal Relief (10% CGT rate on the first £1 million of gains) and rollover relief. These are withdrawn -- FHL disposals from April 2025 are taxed at standard residential CGT rates (18%/24% in 2026/27). 4. **Pension contributions**: FHL profits used to count as "relevant UK earnings," allowing owners to make tax-relievable pension contributions based on those profits. This ceases from April 2025 -- rental profits of any kind (including former FHL) do not count as relevant earnings for pension annual allowance purposes. 5. **Loss relief**: FHL losses could previously be set against other income in some circumstances. From April 2025, FHL losses (like standard rental losses) can generally only be carried forward against future property income, not offset against other income in the same year. **Worked example** Emma owns a £300,000 holiday cottage in Cornwall with a £200,000 interest-only mortgage at 5% (£10,000/year interest), generating £22,000 rental profit before interest, and she is a higher-rate taxpayer. - Pre-April 2025 (FHL rules): taxable profit = £22,000 - £10,000 = £12,000, taxed at 40% = £4,800. - Post-April 2025 (standard rules): taxable profit = £22,000 (no interest deduction from profit), taxed at 40% = £8,800, less a 20% credit on the £10,000 interest (£2,000) = net tax £6,800. Her tax bill rises by £2,000/year purely from the regime change. **Transitional rules** Balancing allowances and capital gains rollover relief already claimed before April 2025 are broadly protected under transitional provisions, but new expenditure and new gains fall under the post-2025 rules. Anyone still running a furnished holiday let should get updated advice on structure (including incorporation) given the removal of these reliefs.