Answers · UK 2025/26
What happened to Furnished Holiday Let tax reliefs after April 2025?
The FHL regime was abolished from 6 April 2025. FHL properties are now taxed as standard residential lettings: mortgage interest relief is restricted to 20%, BADR is no longer available on disposal, capital allowances on furniture are replaced by replacement of domestic items relief, and FHL losses can no longer offset general income.
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The Furnished Holiday Let (FHL) regime gave qualifying short-let properties access to a range of tax reliefs not available to ordinary buy-to-let landlords. The government abolished the FHL regime with effect from 6 April 2025, bringing FHL properties into the standard residential lettings tax framework. Key changes from 6 April 2025 1. Finance costs (mortgage interest) Previously: FHL landlords could deduct mortgage interest and loan costs in full against FHL rental income. From April 2025: the finance cost restriction applies. Mortgage interest is not deductible as a business expense; instead, a 20% income tax credit is available on the lower of finance costs, property income, or adjusted total income. This significantly increases the effective tax rate for higher-rate taxpaying landlords with mortgages. 2. Capital Gains Tax -- Business Asset Disposal Relief FHL properties previously qualified for BADR (formerly Entrepreneurs' Relief) at a reduced CGT rate (14% from April 2025, 18% from April 2026) on gains up to GBP 1M lifetime limit. From 6 April 2025: BADR no longer available on FHL disposals. Gains are taxed at standard CGT rates (18%/24%). 3. Capital allowances FHL landlords could claim Annual Investment Allowance and capital allowances on furniture, fixtures, and equipment. From April 2025: capital allowances no longer available. Replacement of domestic items relief (RDI) is available instead -- this allows a deduction for the cost of replacing (not initially purchasing) furniture and domestic items on a like-for-like basis. 4. Pension contribution earnings FHL profits counted as "relevant earnings" for pension relief, allowing FHL landlords to make larger pension contributions and get higher-rate tax relief. From April 2025: FHL profits are rental income, not earnings -- pension contributions can no longer be enhanced by reference to FHL profits. 5. Losses FHL losses previously could be carried forward against FHL income only but were treated as trading losses in some contexts. From April 2025: losses are standard residential letting losses -- can only be offset against other UK property income, not against general income. Properties that were FHLs on 31 March 2025 transitioned to the new treatment on 6 April 2025.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.