Furnished Holiday Let Tax Rules Changed April 2025: What Now?

The Furnished Holiday Letting (FHL) regime provided a package of tax advantages to landlords who let residential properties on a short-term holiday basis. From 6 April 2025, the regime was abolished. Properties that previously qualified are now taxed as ordinary residential lets, ending benefits that some landlords had relied on for years.

What Was the FHL Regime?

To qualify as a Furnished Holiday Let, a UK or EEA property had to meet annual occupation tests:

• Available for 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 meeting these tests received a range of preferential tax treatments not available to standard buy-to-let landlords.

What Tax Advantages Did FHLs Have?

Business Asset Disposal Relief (formerly Entrepreneurs Relief). FHL landlords could sell their property and pay CGT at 10% on qualifying gains, compared with the 18% or 24% rate that applied to standard residential property disposals. This was one of the most valuable advantages.

Capital allowances. FHL landlords could claim capital allowances on furniture, fixtures, equipment, and -- in some cases -- integral features and structural items. This enabled landlords to write off significant upfront expenditure against income.

Pension contribution relief. FHL income counted as relevant earnings for pension contribution purposes. This meant FHL landlords could make pension contributions up to the value of their FHL profits and receive full pension tax relief -- an advantage ordinary landlords do not have.

Loss relief. FHL losses could be offset against general income in some circumstances, giving flexibility that standard property losses do not provide.

Finance cost treatment. Unlike standard residential landlords (who are subject to the Section 24 mortgage interest restriction, limiting relief to 20%), FHL landlords could deduct all finance costs in full from profits.

What Changed from April 2025

All of the above advantages ceased on 6 April 2025 (1 April 2025 for corporation tax). Former FHL properties are now taxed as ordinary residential lets subject to all the normal rules:

• Income taxed under property business rules, not as a trade
• Finance costs restricted to 20% tax credit (Section 24 applies)
• Capital allowances no longer available on new expenditure (the replacement of domestic items relief is available instead)
• Gains taxed at 18% or 24%, with no access to BADR
• Losses ring-fenced within the property business
• Income no longer counts as relevant earnings for pension purposes

Transition Considerations

Capital allowance pools. If you had an existing capital allowances pool from expenditure incurred while the FHL rules applied, you can continue to claim the writing-down allowance on that pool. The pool does not disappear, but no new expenditure can be added.

BADR anti-forestalling. The government included anti-forestalling provisions in the abolition legislation targeting disposals structured before April 2025 specifically to benefit from BADR. Retrospective planning that does not reflect genuine commercial transactions is at risk of challenge.

Pension contributions already made. Contributions made using FHL profits earned before April 2025 are not affected by the regime change. However, from 2025/26 onwards, holiday letting income no longer creates relevant earnings, so new contributions cannot be made on that basis.

Overlap with Airbnb letting. Many FHL landlords also let properties through Airbnb and similar platforms. The abolition does not change the income tax treatment of letting income itself -- it simply removes the special FHL rules. All short-term letting income remains taxable.

Converting to Standard Buy-to-Let

For some former FHL landlords, the loss of advantages makes short-term holiday letting less attractive compared with a straightforward assured shorthold tenancy (or equivalent). Factors to consider:

• Longer-term tenancy produces more stable income but loses the higher nightly rates of holiday letting
• Standard buy-to-let has its own challenges including Section 24, the 5% SDLT surcharge on purchase, and the energy performance requirements coming into force
• Capital gains tax crystallises on sale regardless of the holding period; there is no mechanism to defer this under the new rules

What Should Former FHL Landlords Do Now?

Review pension contributions. If you have been making pension contributions on the basis of FHL relevant earnings, you will need alternative relevant earnings (for example from employment or self-employment) to justify ongoing contributions at the same level.

Reconsider the capital allowances position. Check whether any remaining pool balance is worth claiming in the short term before the pool becomes immaterial.

Model the CGT position. If you were planning to sell and expecting to benefit from BADR at 10%, revisit your financial model using the 18% or 24% rate. The change may affect the timing of a planned disposal.

Take professional advice. The interaction between the transition rules, pre-existing losses, ongoing letting income, and a potential sale is complex. A property tax specialist can help you navigate the post-FHL landscape.

The abolition of the FHL regime removes a meaningful package of tax advantages that benefited holiday property landlords. Existing investors need to reassess the economics of their properties under the new rules and adjust their planning accordingly.