Furnished Holiday Letting Tax Status Abolition: What It Means Now (2026/27)

What the FHL regime used to offer

Before April 2025, a property that met the Furnished Holiday Letting conditions — available for letting at least 210 days a year, actually let for at least 105 days, and not normally let to the same person for more than 31 continuous days — received significantly more favourable tax treatment than an ordinary residential let. This included full mortgage interest deductibility, capital allowances on furniture and fittings, and access to several Capital Gains Tax reliefs normally reserved for trading businesses.

The March 2024 Budget announced this whole regime would be scrapped from April 2025, aligning holiday lets with the tax treatment of standard residential lettings, on the basis that it had become an increasingly generous tax shelter relative to long-term rental housing.

Worked example 1: Mortgage interest relief lost

Helen owns a holiday cottage generating £28,000 a year in rental income, with £12,000 a year in mortgage interest and £6,000 in other allowable costs (cleaning, management fees, insurance).

Under the old FHL rules:

• Taxable profit: £28,000 − £12,000 − £6,000 = £10,000
• Tax at 40% (higher rate): £4,000

Under the new rules (Section 24 applies):

• Taxable profit (mortgage interest no longer deducted from income): £28,000 − £6,000 = £22,000
• Tax at 40% on £22,000: £8,800
• Less 20% tax credit on the £12,000 mortgage interest: £12,000 × 20% = £2,400
• Net tax: £8,800 − £2,400 = £6,400

Helen's tax bill has risen from £4,000 to £6,400 a year — a £2,400 increase purely from the loss of full mortgage interest deductibility, despite her actual cash profit being unchanged.

Worked example 2: A lowly-geared holiday let

Raj owns his holiday let outright with no mortgage, generating £22,000 in rental income and £7,000 in allowable costs.

• Taxable profit (unaffected by the FHL abolition since there is no mortgage interest to restrict): £22,000 − £7,000 = £15,000
• Tax at 20% (basic rate): £3,000

Because Raj has no mortgage, the loss of full interest deductibility has zero impact on him — this illustrates why the FHL abolition disproportionately affects highly-geared holiday let owners rather than those who own outright or with low borrowing.

Worked example 3: Selling and losing Business Asset Disposal Relief

Before April 2025, an FHL owner selling a qualifying property could potentially access Business Asset Disposal Relief, taxing gains at 10% up to the lifetime limit, instead of the standard residential CGT rates.

Consider a £150,000 gain on sale:

• Under the old FHL rules (BADR available): 10% × £150,000 = £15,000 CGT
• Under the new rules (standard residential CGT): after deducting the £3,000 annual exempt amount, £147,000 taxable at 24% (higher rate) = £35,280 CGT

The difference — over £20,000 in this example — shows why the loss of CGT relief is often the single biggest financial impact of the FHL abolition for owners planning to eventually sell.

Comparing FHL treatment: before and after April 2025

Should you keep, restructure, or sell your holiday let?

The right answer depends heavily on your gearing (how much mortgage debt you carry), your marginal tax rate, and your medium-term plans. Highly-geared, higher-rate taxpayer owners have been hit hardest and should model their numbers carefully — including whether transferring the property (or a share of it) to a spouse in a lower tax band, or incorporating into a limited company, might help.

Use a Buy-to-Let Calculator to model your holiday let's rental yield and cash flow under the new rules, and a Section 24 Calculator to see precisely how the mortgage interest restriction affects your tax bill compared with the old FHL treatment.

Practical next steps

1. Recalculate your annual tax position using the standard Section 24 rules rather than old FHL assumptions.
2. Check any transitional capital allowances pool you may still be entitled to claim from pre-April 2025 spending.
3. Review your ownership structure — a limited company structure avoids Section 24 entirely (companies pay corporation tax and deduct interest as a normal business expense), though incorporation carries its own costs and CGT/SDLT implications.
4. Reassess your exit plan in light of the loss of Business Asset Disposal Relief on future sales.

Sources

• gov.uk: Changes to the tax treatment of Furnished Holiday Lettings
• HMRC: Property Income Manual — Furnished Holiday Lettings
• gov.uk: Capital Gains Tax rates