FHL Capital Allowances After Abolition: Transitional Rules for 2026/27
The Furnished Holiday Lettings tax regime was abolished from April 2025. Here's what happens to existing capital allowances pools, what landlords can still claim, and what changed to replacement of domestic items relief.
Why the FHL regime mattered — and why it was abolished
Before April 2025, properties qualifying as Furnished Holiday Lettings received several tax advantages not available to standard residential landlords: full mortgage interest deductibility, access to certain capital allowances on furniture and equipment, and more favourable Capital Gains Tax treatment on sale (including access to reliefs normally reserved for trading businesses).
From April 2025, the FHL regime was abolished. Furnished holiday lets are now taxed broadly under the same rules that apply to any other residential letting business — removing the historic distinction between "holiday lets" and "long-term lets" for most tax purposes.
What happens to capital allowances you've already claimed
This is the area causing most confusion for existing holiday let owners. The key transitional principle is:
- Capital allowances pools built up before the abolition date continue to exist. If you had a pool of unclaimed capital allowances (for example, from furnishing the property, buying a hot tub, or installing a kitchen) before April 2025, that pool is not wiped out.
- You can continue to claim writing-down allowances on the remaining balance of that pool each year, on the normal reducing-balance basis, exactly as you would have done under the FHL regime.
- What has changed is that you cannot add new expenditure incurred after the abolition date into that pool, and you cannot start a brand-new capital allowances pool for a furnished holiday let going forward.
Worked example:
| Item | Detail |
|---|---|
| Pre-abolition capital allowances pool balance (April 2025) | £18,000 |
| Writing-down allowance rate | 18% (main rate pool) |
| Year 1 allowance claimed | £3,240 |
| Remaining pool balance | £14,760 |
| Year 2 allowance claimed | £2,657 |
| Remaining pool balance | £12,103 |
This continues year after year on a reducing balance, exactly as it would have if the FHL regime were still in force — the owner simply cannot add new capital items into this pool going forward.
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Replacement of domestic items relief works as follows:
- You can deduct the cost of a like-for-like modern equivalent replacement item (furniture, white goods, carpets, curtains, etc.), minus any amount you received for disposing of the old item.
- If you upgrade to a significantly better or larger item, the deduction is generally capped at the cost of the nearest modern equivalent to what was replaced, not the full upgraded cost.
- This relief was already the standard mechanism for ordinary furnished residential lets before the FHL abolition — holiday let owners are effectively brought into a system long-term landlords already use.
Mortgage interest: another change to be aware of
Former FHL owners should also note that the FHL abolition removed full mortgage interest deductibility. Furnished holiday lets are now subject to the same restriction that has applied to standard residential landlords since April 2020: mortgage interest and other finance costs no longer reduce taxable rental profit directly, and instead qualify for a 20% tax credit against the final tax bill.
For a higher or additional rate taxpayer, this is a materially less generous outcome than the old FHL treatment, where mortgage interest was fully deductible at the marginal rate.
Practical steps for former FHL owners
- Identify your pre-abolition capital allowances pool balance — check your accountant's fixed asset/capital allowances working papers as at the abolition date, so you know exactly what balance you can continue to claim writing-down allowances against.
- Separate pre- and post-abolition expenditure clearly in your records — the tax treatment is fundamentally different (capital allowances vs replacement of domestic items relief), so mixing them up risks an incorrect claim.
- Review your mortgage interest treatment — confirm your accountant has moved former FHL mortgage interest onto the 20% tax credit basis rather than a full deduction from April 2025 onward.
- Reassess overall profitability under the new rules — the combined effect of losing full mortgage interest relief and new-expenditure capital allowances can materially change the after-tax return on a holiday let, which is worth modelling before deciding whether to continue, sell, or restructure the letting business.
Use the income tax calculator to model your furnished holiday let's rental profit under the post-abolition rules, and the capital gains tax calculator if you're considering selling.
Frequently asked questions
When was the Furnished Holiday Lettings regime abolished?
The FHL tax regime, which gave holiday let owners more generous tax treatment than standard residential lets, was abolished from April 2025. Furnished holiday lets are now generally taxed under the normal property income rules that apply to other rental properties.
What happens to my existing FHL capital allowances pool after abolition?
Existing capital allowances pools built up before the abolition continue on a reducing-balance basis. You can still claim writing-down allowances each year on the remaining pool value for pre-abolition expenditure, even though the FHL regime itself no longer exists.
Can I make new capital allowances claims on my furnished holiday let now?
No, not for expenditure incurred after the abolition date. New capital allowances claims for furnished lets have been replaced by the normal property income rules, which generally use replacement of domestic items relief instead of capital allowances for items like furniture and appliances.
What is replacement of domestic items relief?
It is a deduction available to landlords of furnished (and unfurnished) residential lets covering the cost of replacing items like furniture, white goods, carpets and curtains, generally limited to the cost of a like-for-like modern equivalent, minus any sale proceeds from the old item.
Does the abolition affect mortgage interest relief for holiday let owners?
Yes. Under the old FHL regime, mortgage interest was fully deductible from rental income. Since abolition, furnished holiday lets are subject to the same restriction as other residential lets, where mortgage interest only qualifies for a 20% tax credit rather than a full deduction.
Should I sell my furnished holiday let because of the abolition?
That depends on individual circumstances — profitability, mortgage gearing, and long-term plans all matter. The abolition reduces some tax advantages but doesn't eliminate the letting business; many owners continue operating under the new rules, particularly where the underlying letting is still commercially profitable.
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