Property Guide · 2026/27
UK Furnished Holiday Let Tax Rules -- What Landlords Need to Know After April 2025
The preferential tax regime for furnished holiday lets (FHLs) was abolished on 6 April 2025, removing mortgage interest deductions, capital allowances, pension contribution eligibility, Business Asset Disposal Relief, and rollover relief in one stroke. If you own a short-term holiday rental, this guide explains exactly what changed and what you should do now.
What Was the FHL Regime?
For decades, furnished holiday let properties occupied a uniquely advantageous position in UK tax law. Unlike ordinary buy-to-let landlords, FHL owners were treated almost as if they ran a business rather than an investment, provided their property met strict availability and occupancy tests: available for at least 210 days per year, actually let commercially for at least 105 days, and not occupied by the same person for more than 31 consecutive days for more than 155 days of the year.
Meeting these tests unlocked a suite of reliefs that were simply unavailable to other landlords. The regime was controversial -- critics argued it created an unfair advantage over long-term residential landlords and incentivised conversion of housing stock to short-term tourist lets, worsening housing shortages in popular areas. After years of discussion, the government announced abolition in Spring Budget 2024 and confirmed the end date of 6 April 2025.
The result is that every FHL landlord in the UK has lost a package of tax advantages simultaneously, with no phased withdrawal and no grandfather provisions beyond the treatment of pre-existing capital allowances pools.
The Five Reliefs That Were Lost
Understanding exactly what disappeared on 6 April 2025 is the starting point for any FHL landlord reviewing their position.
1. Full mortgage interest deduction
FHL landlords could deduct 100% of their mortgage interest as a business expense. From 6 April 2025 the Section 24 restriction applies: finance costs are converted to a 20% basic-rate tax credit. Higher-rate taxpayers face a substantial increase in effective tax on profits.
2. Plant and machinery capital allowances
FHL landlords could claim capital allowances on furniture, white goods, and equipment under the Annual Investment Allowance (AIA) or writing-down allowances. Normal residential landlords cannot do this -- they are limited to the replacement of domestic items relief, which only covers like-for-like replacements.
3. FHL profits as relevant UK earnings for pension relief
Net FHL profits counted as earnings, allowing landlords to contribute up to those profits into a pension and receive full tax relief. Normal property income does not count as earnings, limiting contributions to £3,600 gross (£2,880 net) per year unless you have other qualifying income.
4. Business Asset Disposal Relief (BADR)
FHL properties qualified as business assets, so a sale could attract the 10% BADR CGT rate (now 14% for disposals after 6 April 2025 as the BADR rate itself increased). From 6 April 2025 holiday lets are investment assets; sales are taxed at the standard residential CGT rates of 18% or 24%.
5. Rollover relief on reinvestment
Selling a qualifying business asset and reinvesting in another qualifying asset allowed CGT to be deferred indefinitely. This relief, available to FHL landlords, is gone. There is no equivalent for residential investment property disposals.
How Normal Property Income Rules Now Apply
From the 2025/26 tax year, your holiday let income and expenditure is reported on the UK property pages of your Self Assessment return alongside any other rental income. The property is pooled with your other UK property business (if you have one), which has both advantages and disadvantages.
On the positive side, property business losses from one property can now be offset against profits from another within the same UK property business pool, whereas FHL losses could previously only be used against future FHL profits. On the negative side, you lose all the business-asset treatments described above.
Allowable deductions under normal property income rules include: letting agent fees, advertising costs, buildings and contents insurance, repairs and maintenance (not improvements), utility bills where you pay them, ground rent and service charges, accountancy fees, and the 20% finance cost tax credit on mortgage interest. Improvements (adding value beyond restoring original condition) remain capital expenditure.
The replacement of domestic items relief allows you to deduct the cost of replacing furnishings on a like-for-like basis -- so replacing a sofa with a similar sofa qualifies, but upgrading to a sofa bed does not (only the equivalent replacement cost qualifies for the portion that is a like-for-like replacement).
Capital Gains Tax Position After April 2025
If you sell your holiday let property after 6 April 2025, the gain is taxed as a residential property disposal. The CGT rates for residential property (other than your main home) are 18% for gains falling within the basic-rate band and 24% for gains above the higher-rate threshold. This is the same rate applying to buy-to-let landlords.
The annual CGT exempt amount was reduced to £3,000 from April 2024 and remains at £3,000 for 2026/27. Disposals must be reported to HMRC and any CGT paid within 60 days of completion via the UK Property Reporting Service, even if you file a Self Assessment return.
If you sold your property between the Budget announcement (6 March 2024) and 5 April 2025 having met the FHL conditions, BADR was still available for that disposal at the rate applicable at the time of sale. However, if you contracted to sell but completed after 6 April 2025, you fall under the new rules regardless of when contracts exchanged, unless special anti-forestalling provisions apply.
What Should FHL Landlords Do Now?
The abolition is irreversible -- there is no way to preserve FHL tax treatment for properties you continue to let as holiday accommodation. The key actions are:
- Review your 2025/26 Self Assessment return: Ensure holiday let income is reported on the UK property pages, not as a separate FHL business. Do not claim capital allowances on new items purchased from April 2025 onwards.
- Assess the mortgage interest impact: Model your effective tax rate under the new 20% credit restriction versus the old full deduction. For higher-rate taxpayers the difference can be significant.
- Carry forward any pre-abolition FHL losses correctly: Losses brought forward from earlier FHL years need specific treatment -- take professional advice on whether they can be offset against the pooled property business.
- Consider whether to continue, convert or sell: Each option has different tax consequences. A specialist property tax adviser can model the net-of-tax return for each scenario.
- Review pension contributions: If you used FHL profits to justify high pension contributions, you may need to reduce contributions for 2025/26 onwards unless you have other qualifying earnings.
Key Facts at a Glance -- FHL Abolition
- Abolition date
- 6 April 2025 (tax year 2025/26)
- Mortgage interest relief
- Now restricted to 20% basic-rate credit
- Capital allowances
- No longer available on new purchases
- BADR on disposal
- Not available from 6 April 2025
- Rollover relief
- Not available from 6 April 2025
- Pension contribution basis
- Property income not qualifying earnings
- CGT rates on sale
- 18% (basic) / 24% (higher)
- CGT annual exempt amount
- £3,000 per person (2026/27)
- 60-day CGT reporting
- Required after residential property sale
- Replacement of domestic items
- Still available for like-for-like replacements