Pillar Guide · Updated May 2026
UK Furnished Holiday Let Tax: Regime Abolished 6 April 2025, Loss of Capital Allowances, BADR and Pension Relief, Post-Reform Section 24 Treatment, SDLT 5% Surcharge and Exit Options in 2026/27
The Furnished Holiday Let (FHL) regime — a UK tax framework since 1984 that gave qualifying holiday-let properties trade-like tax treatment — was ABOLISHED from 6 April 2025 by the Spring Budget 2024 announcement. Pre-April-2025 FHLs enjoyed substantial tax advantages over standard residential buy-to-let: full Capital Allowances on furniture and fittings (vs no equivalent deduction for standard BTL); Business Asset Disposal Relief reducing CGT on disposal to 10% up to £1m lifetime gain; pension contributions on FHL profit (relevant earnings status); and exemption from the Section 24 mortgage interest restriction so 100% of interest was deductible against rental profit at the owner's marginal rate. Qualifying conditions required the property to be AVAILABLE for letting at least 210 days, ACTUALLY LET at least 105 days, with no single continuous let exceeding 155 days, commercial intent throughout. From 6 April 2025 these benefits were removed entirely — FHLs now treated identically to standard residential BTL: Section 24 20% basic-rate credit only on mortgage interest, no Capital Allowances, no BADR (residential CGT rates 18%/24% apply), no pension relief on profit, full wear-and-tear restriction. SDLT for FHL purchase remains residential including the 5% Additional Property Surcharge (raised from 3% on 31 October 2024). Council Tax vs Business Rates is a separate live regulatory issue with thresholds tightened in Wales (2023) and Scotland licensing required (April 2024). This pillar guide covers the pre-2025 benefits in detail, the qualifying conditions, the April 2025 abolition mechanics and transitional rules, post-2025 treatment, SDLT and Council Tax implications, exit options (sell, retain, convert to long-term), and a fully worked example showing a higher-rate owner's after-tax position dropping from £20k to £9k per year post-reform in 2026/27.
What Was the FHL Regime?
The Furnished Holiday Let (FHL) regime was a UK tax framework dating from 1984 that treated qualifying holiday-let properties as a TRADE for some tax purposes rather than as standard residential property income. The intention at introduction was to support the UK domestic tourism industry by giving holiday- let operators access to business tax reliefs comparable to other small businesses.
Trade-like treatment meant FHL profits were eligible for Capital Allowances on furniture and equipment, Business Asset Disposal Relief on disposal, pension relief on profit (relevant earnings status), and full mortgage interest deduction at marginal rate. By contrast, standard residential buy-to-let was always taxed as property income with restricted expense deductions, no CAs (only the 10% wear-and-tear allowance pre-April-2016 then Replacement of Domestic Items from April 2016), no business asset CGT relief on disposal, and from April 2017 the progressively-introduced Section 24 restriction on mortgage interest.
The 40-year FHL regime supported the development of holiday-let businesses across Cornwall, Devon, Lake District, Cotswolds, Yorkshire Dales, Scottish Highlands and similar tourist areas. By 2024 there were an estimated 130,000-150,000 properties registered as FHLs in the UK, contributing around £4 billion of annual rental revenue to the tourist economy and producing an estimated £245 million per year of tax expenditure relative to standard BTL treatment. The 2024 Budget identified this cost as the rationale for abolition.
The 210/105/155-Day Conditions
A property qualified for FHL status if it met all four tests in the tax year:
- Availability test (210 days) — the property had to be AVAILABLE for commercial letting as furnished holiday accommodation to the general public for at least 210 days per tax year. Days the owner used the property or it was let to family at uncommercial rates did not count.
- Letting test (105 days) — it had to be ACTUALLY LET as furnished holiday accommodation for at least 105 days per tax year. This was the key "real activity" test that distinguished a genuine commercial holiday let from a holiday home occasionally let.
- Pattern of occupation (155 days) — no single continuous let to one occupant could exceed 31 days as part of the 105-day count, AND total "longer-term occupation" (lets of 31+ continuous days) could not exceed 155 days in total. This stopped long-term residential tenancies from being dressed up as FHLs.
- Commercial test — the letting had to be on a commercial basis with a view to making profit. Family-rate or peppercorn-rent arrangements failed.
Helpful elections. Two reliefs softened the rules: (1) AVERAGING ELECTION — owners with multiple FHL properties could average the letting-test across properties so that one underperforming property could still qualify if portfolio average exceeded 105 days. (2) PERIOD OF GRACE — if a property met the letting test in one year and failed in the next due to genuine reasons (Covid, refurbishment, market downturn), it could elect to be treated as still qualifying in the failure year. Election could be repeated for up to 2 consecutive years.
Pre-April-2025 Benefits
Qualifying FHLs enjoyed four major tax advantages over standard residential BTL:
| Benefit | Pre-April-2025 FHL | Standard residential BTL |
|---|---|---|
| Capital Allowances on furniture/fittings | 100% AIA up to £1m/year | No — only Replacement of Domestic Items |
| Mortgage interest deduction | 100% at marginal rate | 20% basic-rate credit only (Section 24) |
| CGT on disposal | 10% BADR (to £1m) | 18%/24% residential rates |
| Pension relevant earnings | Yes — profit counts | No — non-earnings income |
| Roll-over relief (replace asset) | Available | Not available |
| Loss treatment | Ring-fenced FHL loss | Ring-fenced property loss |
The combined value of these benefits for a typical mid-size FHL (£40-£60k revenue) was around £5,000-£12,000 per year versus equivalent standard BTL treatment, plus the one-off CGT saving on disposal which could exceed £100k on long-held appreciated properties. This drove substantial investment into FHLs through the 2000s and 2010s, with estimated 130-150k properties registered as FHLs by 2024.
The April 2025 Abolition
The Spring Budget 2024 (6 March 2024) announced abolition of the FHL regime from 6 April 2025 (4 April 2025 for Corporation Tax). Implementing legislation in Finance Act 2024 / Finance (No.2) Act 2024. Three reasons cited:
- Housing supply — FHL tax advantages encouraged conversion of long-term rental homes to short-term holiday lets in tourist hotspots, exacerbating local housing shortages. Council leaders in Cornwall, Lake District, North Yorkshire and similar areas had lobbied for reform.
- Tax fairness — different tax treatment for fundamentally similar economic activity (renting out a property) was seen as distortionary.
- Revenue raising — estimated £245m/year additional tax revenue, modest in fiscal terms but politically defensible.
From 6 April 2025, qualifying FHLs are treated as standard residential rental property for income tax (and 4 April 2025 for Corporation Tax for incorporated FHLs). All pre-2025 benefits cease:
- Mortgage interest restricted to 20% basic-rate credit (Section 24 applies);
- Capital Allowances no longer claimable on furniture/fittings purchased post-April-2025 (existing pools written down at normal rates);
- BADR no longer available on FHL disposal (subject to narrow transitional rules where the property qualified throughout ownership up to April 2025);
- Pension relevant-earnings status lost;
- Roll-over relief no longer available.
Transitional rules. Existing CA pools at 6 April 2025 continue to be written down at the normal 18% Main Pool or 6% Special Rate Pool annual rates, but no further additions. Existing FHL losses brought forward at 6 April 2025 can be set against future property income from the same property (no longer ring-fenced as FHL-specific). BADR transitional relief is narrow — where the property qualified as FHL throughout ownership up to April 2025, a disposal within a few years of April 2025 may still attract BADR; specialist advice essential.
Post-2025 Treatment
From 6 April 2025, FHL properties are treated as standard residential rental property for income tax purposes. The consequences:
- Section 24 mortgage interest restriction applies — interest replaced by 20% basic-rate tax credit. For higher-rate owners, the after-tax cost of mortgage interest doubles relative to pre-2025.
- No new Capital Allowances — furniture, fittings and equipment purchased post-April-2025 do not attract CAs. Replacement of Domestic Items relief applies (like-for-like replacement of existing items).
- Residential CGT rates apply — 18% basic-rate band, 24% higher-rate band on disposal gains. No BADR (subject to narrow transitional).
- No pension relief on FHL profit — profit is property income, not relevant earnings.
- No roll-over relief — sale-and-replacement does not attract CGT deferral.
- Loss treatment — losses can be set against other UK property income (across all properties in the portfolio), but not against general income.
Continued operational reality. The property still operates as a short-term holiday let — same revenue, same costs, same guests, same booking patterns. Only the tax treatment changes. Many FHL owners report the post-2025 environment is workable but materially less profitable after-tax, especially for leveraged owners. Some are accelerating divestment; others are converting to long-term residential lets (less tourism revenue but lower management overhead); a small minority are incorporating to access Corporation Tax (19-25%) rates which may be lower than personal income tax for higher-rate owners, though this carries other complexities (Annual Tax on Enveloped Dwellings, denied PRR, more complex extraction).
SDLT and Additional Property Surcharge
FHLs are RESIDENTIAL property for Stamp Duty Land Tax purposes despite being a trading business. This was the case both pre and post 2025 reform — the SDLT treatment did not change with the April 2025 income tax abolition. Residential SDLT in England and Northern Ireland 2025/26:
- £0-£125,000: 0%
- £125,001-£250,000: 2%
- £250,001-£925,000: 5%
- £925,001-£1,500,000: 10%
- Above £1,500,000: 12%
Additional Property Surcharge. An additional 5% (raised from 3% by Autumn Budget 2024 effective 31 October 2024) applies to most FHL acquisitions since the buyer typically already owns at least one residential property. The surcharge applies to the whole purchase price, not just the top slice.
Worked SDLT on £400k FHL purchase by buyer who already owns a home: standard residential 0% on £125k + 2% on £125k + 5% on £150k = £0 + £2,500 + £7,500 = £10,000 + 5% surcharge on £400k = £20,000 = £30,000 total SDLT. Scotland LBTT and Wales LTT have separate rate structures with their own additional property surcharges (Scotland ADS 8% from December 2024; Wales LTT additional residential rates 5%+ in top bands). The high SDLT cost combined with post-2025 operating tax disadvantage has substantially cooled new FHL investment.
Council Tax vs Business Rates
FHLs and short-term lets can be assessed for either Council Tax (residential band) or Business Rates (Non-Domestic Rates, NDR / commercial) depending on usage and registration. The distinction matters because:
- Business Rates with Small Business Rates Relief (SBRR) — if Rateable Value below £12,000, 100% relief, pay £0. Tapered relief between £12k-£15k. Common outcome for small coastal FHLs.
- Council Tax — depending on band, £1,200-£3,500/year typically; plus Council Tax Premium for empty homes / second homes in some areas (up to 100% surcharge from April 2024 under Levelling Up Act 2023).
England qualifying criteria for Business Rates: property available for short-term commercial letting for at least 140 days in the year AND actually let for at least 70 days.
Wales tightened thresholds from April 2023: 252 days available AND 182 days actually let. This explicit tightening pushed many Welsh holiday lets back into Council Tax (with the 100%+ second-home Council Tax Premium where applicable — Gwynedd, Pembrokeshire, Anglesey have all maxed the premium).
Scotland operates a mandatory Short-Term Let Licensing scheme since 1 October 2023 (full enforcement April 2024) with separate Business Rates / Council Tax rules. England consultation in 2024 considered a similar registration / 140- day threshold tightening; final policy expected 2026. Owners should check current rating list status with their local authority and Valuation Office Agency (VOA) and budget for policy changes — local authorities have substantial discretion in tourist hotspots.
Exit Options Post-2025
Post-April-2025, FHL owners broadly have four options:
- RETAIN as short-term holiday let — continue operating but accept materially lower after-tax cash flow. Practical for unleveraged owners or properties in strong locations where gross revenue is high. Best for low-mortgage, high-revenue, high-tourism-demand locations.
- CONVERT to long-term residential let (AST) — lower revenue, lower management overhead, more predictable cash flow. Loses tourism premium but avoids Section 24 issues at the marginal level (still applies but interest cost is similar at lower gross). Suits owners burnt out on guest turnover management.
- SELL — pre-2027 disposals may still access narrow BADR transitional relief if property qualified throughout ownership. Post-transitional, residential CGT at 18%/24% applies. SDLT historical cost already sunk; current sale proceeds reflect post-2025 reality. Many FHL owners are accelerating sales in 2025-2026 to crystallise gains before any further policy tightening.
- INCORPORATE — transfer to a limited company holding structure to access Corporation Tax (19-25%) rather than personal IT (20-45%). But incurs SDLT on transfer (residential rates including surcharge), and incorporation relief mechanics are complex. Annual Tax on Enveloped Dwellings (ATED) applies for properties over £500k held in companies. Specialist tax advice essential.
Decision framework. The right exit depends on individual circumstances: leverage ratio, marginal tax band, retirement proximity (BADR transitional value), tourism demand at the location, ATED exposure if incorporating, personal preference for active vs passive management. Most owners should run the numbers in two-three scenarios with a property-specialist accountant before committing.
Worked Example
Profile. Higher-rate (40%) taxpayer owns a £400k FHL in Cornwall, purchased 2018, current mortgage £200k with £15,000 annual mortgage interest. Annual revenue £50,000 (mix of summer peak + shoulder-season + half-term); operating costs £15,000 (cleaning between guests £30/turnover × ~80 turnovers = £2,400; utilities £1,800; council tax / business rates £0 under SBRR; insurance £600; maintenance and repairs £2,500; marketing/Airbnb fees £4,500; misc £3,200).
Pre-April-2025 tax position (2024/25 final FHL year).
- Revenue: £50,000.
- Operating costs: -£15,000.
- Mortgage interest (fully deductible): -£15,000.
- Capital Allowances on £8,000 furniture refresh year 1: -£8,000.
- Taxable profit: £12,000.
- Tax at 40%: £4,800.
- Net cash after tax: £50k - £15k - £15k - £4.8k = £15,200.
- Pension relief — £12k profit unlocks £12k pension contribution headroom, but the owner has £30k elsewhere of relevant earnings so this is marginal. Skip.
- If disposed (£200k gain over £400k base): CGT at 10% BADR = £20,000 (with £3k allowance ignored for simplicity). Net disposal proceeds: £200k - £20k = £180k.
Post-April-2025 tax position (2025/26 onward).
- Revenue: £50,000.
- Operating costs: -£15,000.
- Mortgage interest: NOT deductible — replaced by 20% basic-rate tax credit on £15k = £3,000 tax reduction.
- No Capital Allowances (existing pool of £8k continues at 18% WDA = £1,440 WDA year 1 post-2025, declining).
- Taxable profit (no interest deduction): £35,000.
- Tax at 40% on £35k = £14,000, less £3,000 interest credit = £11,000.
- Net cash after tax: £50k - £15k - £15k - £11k = £9,000.
- If disposed (£200k gain): residential CGT at 24% = £48,000 (with £3k allowance ignored). Net disposal proceeds: £200k - £48k = £152k.
Reform impact.Annual after-tax cash flow drops from £15,200 to £9,000 — a £6,200/year hit (40% reduction). On 10-year hold, lost £62,000 of cash flow. Disposal CGT increased from £20k to £48k — additional £28k tax on disposal. Combined 10-year impact: ~£90k worse off. For this profile, retention is still cash-flow positive but much less attractive; conversion to long-term let or sale may be preferable depending on tourism demand at the location and the owner's management preferences.