Furnished Holiday Let Tax Rules End April 2025: What UK Landlords Need to Know in 2026
The UK Furnished Holiday Let tax regime was abolished from 6 April 2025. This guide covers what landlords lost and how to adapt your property tax strategy in 2026.
The End of Furnished Holiday Let Tax Advantages in the UK
For decades, owners of short-term holiday rental properties in the UK enjoyed a significantly more favourable tax treatment than regular residential landlords. That era ended on 6 April 2025 when the government abolished the Furnished Holiday Let (FHL) tax regime entirely.
If you own an Airbnb, a cottage on a holiday park, or any property you let as a short-term holiday let, you are now taxed as an ordinary residential landlord -- with none of the advantages the FHL rules provided.
This guide explains what changed, what you lost, and how to adapt your strategy as a landlord operating in 2026.
What Was the FHL Regime?
The Furnished Holiday Let regime was a set of special tax rules that applied to UK residential properties (and EEA properties until April 2023) that were:
- Available for commercial letting for at least 210 days per year
- Actually let for at least 105 days per year
- Not let to the same person for more than 31 consecutive days for more than 155 days per year
Properties that met these tests were treated more like a business than a passive investment for tax purposes. This unlocked a range of benefits not available to ordinary landlords.
What FHL Landlords Lost from April 2025
1. Full Mortgage Interest Deduction
Under the FHL regime, mortgage interest on the holiday let was fully deductible against rental income -- unlike the rules for ordinary residential landlords, where interest relief has been restricted to a 20% basic rate credit since 2020.
From April 2025, FHL landlords are now subject to the same restriction. If you pay higher-rate income tax, this is a significant change. A landlord with £10,000 of annual mortgage interest who previously deducted the full amount now only gets relief at 20% -- a £2,000 loss of relief worth up to £800 in extra tax per year.
2. Capital Allowances
Under the FHL regime, landlords could claim capital allowances on furniture, equipment, and certain building elements -- claiming 100% first-year allowances on qualifying items in many cases.
From April 2025, FHL properties can only claim replacement of domestic items relief (the same as other residential landlords). This allows you to deduct the cost of replacing an existing item (like a sofa or washing machine) but not the original purchase. New fixtures and fittings for a newly furnished property no longer get upfront relief.
3. Business Asset Disposal Relief (Formerly Entrepreneurs Relief)
When you sold a qualifying FHL property, you could apply Business Asset Disposal Relief (BADR) to the gain -- capping your Capital Gains Tax rate at 10% on the first £1 million of lifetime gains.
From April 2025, FHL property disposals are taxed at standard residential CGT rates: 18% (basic rate) or 24% (higher/additional rate) on any gain. For a landlord with a £200,000 gain, this could mean an additional £28,000 in CGT compared to the old 10% BADR rate.
4. Pension Contribution Counting
Under the FHL regime, profits from the holiday let counted as "relevant UK earnings" for pension contribution purposes. This meant high-earning landlords could make pension contributions based on their FHL income and claim higher-rate tax relief.
From April 2025, rental income -- including FHL income -- is treated as investment income. It does not count towards the earnings limit for pension contributions. This affected landlords who were using FHL profits to fund substantial pension contributions.
5. Rollover Relief
Landlords who sold an FHL property and reinvested in another qualifying business asset could defer CGT through rollover relief. This is no longer available for property sales after April 2025.
How FHL Properties Are Taxed in 2026
From April 2025, all income from short-term holiday lets is treated as ordinary UK property income. The rules are now the same as for any other residential rental property:
- Rental income is added to your other income and taxed at your marginal rate
- You can deduct allowable expenses: letting agent fees, insurance, repairs and maintenance, utilities (if you pay them), accountancy fees
- Mortgage interest is not fully deductible -- you get a 20% tax credit instead
- Losses can only be offset against other UK property income, not your general income
- Income is reported in the UK property pages of your Self Assessment return
Transition Planning: What to Consider in 2026
The abolition has already happened, but there are still planning steps worth reviewing.
Review Your Mortgage Structure
If you have an interest-only mortgage on a holiday let, the restriction to a 20% credit will increase your tax bill. Consider:
- Whether the property remains profitable after the higher tax burden
- Whether switching to a repayment mortgage makes financial sense
- Whether restructuring ownership (e.g., through a company) changes the numbers
Capital Gains Planning
If you were considering selling the property, the removal of BADR is a significant factor. CGT rates on residential property are now 18% and 24%, and all gains must be reported to HMRC and the tax paid within 60 days of completion.
Think carefully about timing -- the property was not eligible for BADR on any disposal after 5 April 2025, even if you bought it decades ago when FHL reliefs existed.
Pension Contribution Review
If you were relying on FHL profits to support pension contributions (for example, making large contributions to a SIPP), speak to an independent financial adviser. Your maximum pension contribution in 2026/27 is the lower of your earned income (now excluding rental income) or the annual allowance of £60,000.
Are There Any Remaining Advantages to Holiday Letting?
Despite the loss of favourable tax treatment, short-term holiday lets can still be financially attractive compared to long-term tenancies in high-demand tourist areas:
- Rental yields are often higher -- especially peak season
- You retain more flexibility to use the property yourself
- There is no risk of problem tenants under assured shorthold tenancy obligations
- Business rates (rather than council tax) may still apply to larger holiday letting operations -- and small business rates relief can mean a nil business rates bill
Additionally, if you run the holiday let as a genuine commercial enterprise and can demonstrate it is a business (rather than a passive investment), there may still be planning arguments around Inheritance Tax and Business Property Relief -- though HMRC is increasingly challenging these.
Practical Steps for Affected Landlords
- Review your 2024/25 Self Assessment -- your final tax return under the old FHL rules should have been completed correctly before April 2025 ended
- Update your bookkeeping -- from April 2025, report all short-term let income in the UK Property pages, not the FHL section (which no longer exists)
- Recalculate your profit and loss -- your taxable profit will likely be higher under the new rules due to the mortgage interest restriction
- Consider professional advice -- the interaction between CGT timing, pension planning, and property restructuring is complex; an accountant specialising in property can model the options for you
Summary
The abolition of the FHL regime on 6 April 2025 was a significant change for UK holiday let landlords. The loss of full mortgage interest deduction, capital allowances, BADR, and pension contribution counting means that many holiday let owners will face materially higher tax bills from 2025/26 onwards.
If you own a short-term rental property, review your financial model, consult a tax adviser, and use our rental income calculator to understand what your revised after-tax position looks like.
Frequently asked questions
When exactly did the Furnished Holiday Let tax regime end?
The FHL regime was abolished from 6 April 2025. From that date, all FHL properties are taxed as ordinary UK property income, with no special reliefs.
Can I still claim capital allowances on my FHL property in 2026?
No. Capital allowances on FHL properties were only available under the old regime. From April 2025, you can only claim replacement of domestic items relief, like any other residential landlord.
Does the FHL abolition affect Business Asset Disposal Relief?
Yes. FHL properties no longer qualify for Business Asset Disposal Relief (formerly Entrepreneurs Relief), which offered a 10% CGT rate on disposal. Sales after April 2025 are subject to standard CGT rates.
Can FHL income still count towards pension contributions?
No. Under the old FHL regime, profits counted as UK earnings for pension contribution purposes. From April 2025, rental income is investment income and does not count towards the earnings limit for pension relief.
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