Has the Furnished Holiday Lettings tax regime been abolished?

Full answer

The Furnished Holiday Lettings (FHL) regime, which gave holiday let landlords more favourable tax treatment than ordinary buy-to-let landlords, was abolished with effect from 6 April 2025 (the start of the 2025/26 tax year), and continues to apply for 2026/27 and beyond. **What FHL owners lost** Previously, qualifying furnished holiday lets benefited from: 1. **Full mortgage interest deduction** -- FHL owners could deduct 100% of mortgage interest as an expense before calculating profit, unlike ordinary landlords who since April 2020 only get a 20% tax credit under Section 24 rules. 2. **Capital allowances** -- FHL owners could claim capital allowances on furniture, equipment, and fixtures, rather than only the more restrictive replacement of domestic items relief available to ordinary landlords. 3. **Pension-relevant earnings** -- FHL profits counted as relevant UK earnings for pension annual allowance purposes, letting owners make personal pension contributions against that income; ordinary rental income does not qualify. 4. **Capital Gains Tax reliefs** -- FHLs qualified for Business Asset Disposal Relief, rollover relief and gift holdover relief on disposal, all reserved for trading-like businesses. **What FHL owners now face** From 6 April 2025, furnished holiday let income is taxed exactly like ordinary residential property income: mortgage interest only qualifies for the 20% tax credit (not full deduction), no capital allowances on furnishings (replacement of domestic items relief applies instead), no pension-relevant earnings treatment, and standard CGT rules on sale (though transitional rules preserved some CGT reliefs for disposals shortly after the change for certain qualifying periods). **Worked example: impact on a higher-rate taxpayer** Before the change, a higher-rate taxpayer earning £30,000 FHL profit with £10,000 mortgage interest paid tax on £20,000 net profit (£8,000 at 40%). After the change, the same landlord pays tax on the full £30,000 gross profit less only a 20% credit on the £10,000 interest (£2,000), a significantly worse outcome -- broadly £12,000 tax versus £8,000 previously, before other allowances. **Ongoing planning** Some owners have restructured ownership (e.g. incorporating into a limited company, where mortgage interest remains fully deductible against corporation tax) or reassessed whether continuing to run the holiday let is still worthwhile given the tax change.

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