Furnished Holiday Let Abolition 2025: What Changed for Property Investors

The Furnished Holiday Let (FHL) regime, which gave short-term rental landlords a suite of preferential tax treatments, was abolished on 5 April 2025. Properties previously qualifying as FHLs are now taxed as standard UK property income. If you own a holiday let, the impact is significant and ongoing. This guide explains what you have lost, what transitional rules applied, and what your options are now.

What Was the FHL Regime?

Before abolition, a property qualified as an FHL if it was:

• Available to let commercially for at least 210 days per year
• Actually let for at least 105 days per year
• Not occupied by the same person for more than 31 consecutive days in any period of 155 days or more

Properties meeting these tests benefited from a cluster of tax advantages not available to standard buy-to-let landlords.

What FHL Landlords Have Lost

Full mortgage interest deductibility -- under the FHL regime, mortgage interest was deducted from rental income as a business expense, just like a sole trader deducting a business loan. Standard residential landlords lost this right between 2017 and 2020 and now receive only a 20% basic rate tax credit instead. FHL landlords are now on the same restricted basis.

For a higher-rate taxpayer with GBP 10,000 of annual mortgage interest, the switch from full deduction to a 20% credit can add GBP 2,000 or more to their annual tax bill.

Capital allowances -- FHL properties qualified for capital allowances on furniture, fixtures, and equipment. Under the standard property income rules, the Replacement of Domestic Items relief applies instead, which only covers like-for-like replacements and not initial purchases. If you bought new furniture and white goods for a new FHL in 2024, you could claim capital allowances on those costs; for purchases from 6 April 2025 onwards, you cannot claim anything on the initial fit-out.

Pension contribution relief -- FHL profits counted as earnings for pension purposes, allowing landlords to make pension contributions up to the level of their FHL profits and receive tax relief. Standard rental income does not count as relevant earnings for pension purposes. From 6 April 2025, FHL profits no longer support pension contributions unless you have other qualifying earnings.

Business Asset Disposal Relief (BADR) on CGT -- this is arguably the most significant loss for landlords planning to sell. Under the FHL regime, a sale could qualify for BADR (formerly Entrepreneurs' Relief), meaning gains were taxed at the reduced BADR rate rather than the standard CGT property rate.

From 6 April 2026, the BADR rate rose to 18% (up from 14% in 2025/26). Standard residential CGT rates are 18% (basic rate) and 24% (higher rate) on residential property. The annual exempt amount is GBP 3,000. For large gains, the difference between BADR and higher-rate CGT on a property sale can amount to tens of thousands of pounds.

Rollover relief and gift relief -- FHLs were treated as business assets, making rollover relief (deferred CGT on reinvestment) and gift relief available. These reliefs no longer apply post-abolition.

Transitional Rules That Applied in 2024/25

HMRC confirmed that properties that were FHLs in 2024/25 were treated under the old rules for the final year. The transitional period ended on 5 April 2025. Any disposal of an FHL after that date is treated under standard CGT residential property rules unless other conditions apply.

What Are Your Options Now?

Sell before the next significant threshold -- if your FHL has a large unrealised gain and you were planning to hold it long-term, review whether selling now makes sense. The BADR window for pre-April 2025 sales has closed, so you are now looking at standard CGT rates. However, the GBP 3,000 AEA and any available losses can reduce the liability.

Restructure as a commercial letting -- some owners are converting short-term holiday lets into longer-term assured shorthold tenancies. This shifts the property firmly into the standard residential landlord framework but removes the operational complexity of short-term letting platforms and may improve mortgage eligibility.

Consider incorporation -- limited companies are not subject to the individual landlord mortgage interest restriction; they can still deduct mortgage interest as a business expense. However, incorporation itself may trigger SDLT and CGT on the transfer, and the numbers need careful analysis. This is a decision requiring professional advice.

Review insurance and mortgage products -- many holiday let mortgage products were underwritten on the basis of FHL commercial income. With the regime gone, lenders may reassess at remortgage. Check your terms.

The Bigger Picture

The abolition of the FHL regime reflects a policy direction of levelling tax treatment between different types of rental property. Whether you view this as fair or punitive depends on your position, but the practical result is that short-term let landlords now face the same structural disadvantages as long-term residential landlords -- with the additional complexity of running a hospitality-style business.

If you have not yet reviewed your 2025/26 tax position, the time to act is now. The regime change feeds through to your first affected tax return for the year ended 5 April 2026.

Use the CalcHub property income tax calculator to model your rental income tax under the new rules.