Comparison · Property Tax · 2026
Furnished Holiday Let vs Long-Term Let UK 2026: Tax Now the FHL Regime Has Gone
The Furnished Holiday Lettings tax regime was abolished on 6 April 2025. Holiday lets now face the same Section 24 mortgage interest restriction as long-term lets, capital allowances are gone and Business Asset Disposal Relief no longer applies on sale. This guide compares the two strategies on income, tax, management and CGT using 2026/27 figures.
Key Change: FHL Regime Abolished 6 April 2025
- • Section 24 now applies to all holiday lets -- mortgage interest gives only a 20% tax credit
- • Capital allowances ended -- only Replacement of Domestic Items Relief remains
- • BADR (10% CGT) no longer available on holiday let sales from 6 April 2025
- • Holiday letting no longer counts as a trade for pension contribution purposes
- • Holiday let gross income premium may still justify the extra management burden
At a Glance: FHL vs Long-Term Let (Post-April 2025)
| Factor | Holiday Let (from Apr 2025) | Long-Term Let |
|---|---|---|
| Section 24 applies? | Yes (from 6 Apr 2025) | Yes |
| Capital allowances on furniture | No (ended Apr 2025) | No (replacement relief only) |
| BADR on sale (10% CGT) | No (ended Apr 2025) | Never applied |
| CGT rate on sale (2026/27) | 18% / 24% | 18% / 24% |
| Typical gross income premium | Often 2x--4x long-term rent | Baseline |
| Management costs | High (20--25% plus cleaning) | Lower (10--12% if managed) |
| Income stability | Seasonal, variable | Predictable monthly |
| Pension contribution eligibility | No longer a trade (from Apr 2025) | Never a trade |
Worked Example: GBP 400,000 Coastal Cottage
Consider a GBP 400,000 holiday cottage in Cornwall. As a holiday let, peak weeks in July and August rent at GBP 2,000 per week, shoulder-season weeks at GBP 1,000, and off-peak at GBP 600. With 30 let weeks (15 peak, 10 shoulder, 5 off-peak), gross income is GBP 40,000. As a long-term let, the equivalent monthly rent is GBP 1,400 (GBP 16,800 per year). The owner has a GBP 250,000 interest-only mortgage at 4.5% = GBP 11,250 interest.
| Item | Holiday Let | Long-Term Let |
|---|---|---|
| Gross income | GBP 40,000 | GBP 16,800 |
| Management fees (25% / 10%) | GBP 10,000 | GBP 1,680 |
| Cleaning and consumables | GBP 3,000 | GBP 0 |
| Insurance and maintenance | GBP 2,500 | GBP 1,200 |
| Net income before tax (excl. interest) | GBP 24,500 | GBP 13,920 |
| Tax (40% less 20% credit on GBP 11,250 interest) | approx. GBP 7,550 | approx. GBP 3,318 |
| Estimated net profit after tax and interest | approx. GBP 5,700 | approx. GBP 1,352 |
In this scenario, holiday letting still outperforms on net profit despite the abolition of FHL advantages. However, the margin is not as large as the gross income gap suggests, and the holiday let owner invests significantly more time and has seasonal income risk.
CGT on Sale: No More BADR
Before the FHL abolition, selling a qualifying holiday let could attract Business Asset Disposal Relief at 10% CGT on the first GBP 1 million of lifetime gains. On a property with a gain of GBP 150,000, BADR saved GBP 21,000 compared with the 24% higher-rate residential CGT. From 6 April 2025, this advantage is gone. Both holiday and long-term lets are now taxed at 18% (basic rate) or 24% (higher rate) on the gain above the GBP 3,000 annual CGT allowance in 2026/27.
Verdict
The FHL abolition removed the tax incentive to choose holiday letting purely for its reliefs. The decision now rests on the commercial fundamentals: does the gross income premium in your location justify the higher management costs and seasonal risk? In high-demand tourist destinations with strong year-round booking potential, holiday letting can still be the better net income generator. In locations where holiday bookings are seasonal and long-term tenant demand is strong, the simplicity and stability of a long-term let may now compare more favourably.