Holiday Let vs Buy-to-Let Tax in 2026 After FHL Abolition
The furnished holiday lettings tax regime is gone from April 2025, so holiday lets and standard buy-to-lets are now taxed alike. Here is what changed and what it costs.
For years a furnished holiday let was a tax-favoured way to own property: full mortgage interest deduction, generous capital allowances and access to business CGT reliefs. From April 2025 the furnished holiday lettings (FHL) regime was abolished. Holiday lets are now taxed just like any other buy-to-let. Here is what that means in 2026.
What the FHL regime used to give
Under the old rules, a qualifying holiday let was treated more like a trading business than a passive rental. That brought:
- Full deduction of mortgage interest against profit.
- Capital allowances on furniture and fittings.
- CGT reliefs including business asset disposal relief and rollover relief.
- Profits counting as relevant earnings for pension contributions.
All four of those advantages have now gone. A holiday let is taxed under the standard property income rules.
The big change: interest relief
The most expensive change is the loss of full interest deduction. Like every other residential landlord, holiday let owners are now subject to the Section 24 restriction. Finance costs are not deducted from profit; instead you get a basic-rate 20% tax credit.
Worked example. Suppose a holiday let earns GBP 24,000 a year, with GBP 6,000 of mortgage interest and GBP 4,000 of other allowable running costs (cleaning, insurance, repairs).
Under the new rules:
- Taxable profit = rent GBP 24,000 - other costs GBP 4,000 = GBP 20,000 (interest is not deducted here).
- A higher-rate taxpayer pays 40% on GBP 20,000 = GBP 8,000.
- Then a 20% credit on the GBP 6,000 interest = GBP 1,200 reduction.
- Net tax = GBP 8,000 - GBP 1,200 = GBP 6,800.
Under the old FHL regime, the GBP 6,000 interest would have been deducted first, leaving GBP 14,000 of profit taxed at 40% = GBP 5,600. So the same property now costs this landlord GBP 1,200 more in tax a year. The gap widens the bigger the mortgage.
Capital gains and pensions
Two further losses bite when you sell or plan retirement:
- CGT: business asset disposal relief no longer applies, so a gain on sale is taxed at the standard residential rates of 18% in the basic band and 24% in the higher band, after the GBP 3,000 annual exempt amount.
- Pensions: holiday let profit no longer counts as relevant earnings, so you cannot use it to justify large personal pension contributions.
Holiday let vs buy-to-let now
With the tax playing field levelled, the comparison comes down to operations rather than tax breaks:
- Income: holiday lets can earn more per night but suffer voids out of season.
- Effort: holiday lets need cleaning, changeovers and marketing; buy-to-lets are lower touch.
- Costs: holiday lets carry higher running costs that are deductible, but no longer the special allowances.
- Regulation: short-let licensing and planning rules are tightening in many areas.
A practical checklist if you own or are eyeing a holiday let in 2026:
- Recalculate your tax now interest relief is restricted to 20%.
- Check whether holding the property in a limited company changes the maths, as companies still deduct interest.
- Confirm any local short-let licensing requirements.
- Compare projected net yield against a standard buy-to-let before buying.
The holiday let is no longer a tax shelter. It can still be a strong income property where demand and occupancy are high, but you should run the numbers on the post-FHL basis, not the old one.
To compare net yields and tax under the current rules, use our rental income and tax calculators, and read the FHL abolition guidance on gov.uk before making any decision.
Frequently asked questions
Related reading
Dividend vs Salary for a Scottish Company Director: 2026/27 Optimal Split
A Scottish company director extracting £60,000 saves £9,310.27 a year by taking a low salary plus dividends instead of a salary-heavy split — £3,067.50 more than an identical rUK director saves, because Scotland's 42% higher rate starts at £31,092 instead of £50,270. Full worked numbers.
Guernsey Income Tax vs UK: A Relocation Guide for 2026/27
Guernsey, like Jersey, is a Crown Dependency with its own tax system entirely separate from the UK's. Here's what actually changes on income tax, property tax and social security if you relocate.
Remote Working from the Highlands & Islands: Tax and Cost of Living in 2026/27
Remote workers based in the Highlands and Islands pay the same Scottish income tax as everyone else in Scotland — there's no special rural rate. On £45,000, that means roughly £3,068 a year less take-home pay than an identical rUK remote worker, a gap that sits alongside higher fuel and ferry costs but often lower housing costs.