Furnished Holiday Lettings (FHL) Tax Guide 2026/27— Are the Benefits Gone?

What Were Furnished Holiday Lettings?

A Furnished Holiday Letting (FHL) was a residential property that was commercially let on a short-term basis to holidaymakers and met specific HMRC tests. For the final tax year before abolition (2024/25), the qualifying conditions were:

• The property must be available for letting as holiday accommodation for at least 210 days per year
• The property must actually be let commercially for at least 105 days per year
• Any single letting period must not normally exceed 31 consecutive days
• The property must be furnished to a standard suitable for normal occupation

The UK and EEA (European Economic Area) rules were slightly different in terms of geography. FHLs in EEA countries were treated the same as UK FHLs until the EEA FHL regime was abolished in April 2023, two years before the UK regime ended.

Benefits That Have Now Been Removed

The FHL regime offered a collection of valuable tax benefits that distinguished FHL owners from standard residential landlords. All of these were abolished from 6 April 2025:

Section 24: The Finance Cost Restriction Explained

Section 24 of the Finance (No.2) Act 2015 phased in a restriction on the deductibility of finance costs (primarily mortgage interest) for residential landlords. Since April 2020, it has applied in full: no deduction for finance costs against rental income. Instead, a basic-rate (20%) tax credit is given.

Before abolition (FHL example): A higher-rate taxpayer with £30,000 FHL rental income and £15,000 mortgage interest could deduct the interest in full, leaving £15,000 taxable profit. Tax at 40% = £6,000.

After abolition (standard let treatment):The same taxpayer now has £30,000 taxable income (mortgage interest is not deducted), but receives a £3,000 basic-rate tax credit (20% of £15,000). Tax: £30,000 × 40% = £12,000, less £3,000 credit = £9,000. The effective tax bill has increased by £3,000 per year.

For mortgaged FHL owners who pay higher-rate tax, Section 24 is typically the most damaging aspect of the abolition. The impact increases with higher mortgage-to-value ratios and higher income tax rates.

Transitional Rules: Capital Allowances in Progress

Existing capital allowance pools at the date of abolition (5 April 2025) are preserved and continue to be relieved through the normal writing-down allowance mechanism. The key transitional rules are:

• Main pool (18% WDA): Any unrelieved expenditure in the main pool (plant and machinery bought for the FHL) continues to attract 18% writing-down allowances each year.
• Special rate pool (6% WDA): Integral features (heating, electrical, etc.) in the special rate pool continue on the same basis.
• No new claims: No capital allowance claims can be made on new expenditure incurred from 6 April 2025 on these properties. Replacement of domestic items relief applies instead (a deduction for like-for-like replacements only).

If you are still claiming writing-down allowances on pre-April 2025 assets, keep detailed records of pool balances and the assets they relate to. HMRC may ask for evidence in any compliance check.

What Is Still Different for Short-Let Properties

While the income tax and CGT advantages are gone, some features still distinguish short-let holiday properties from standard residential lets:

• VAT: Short-term holiday lettings (under 28 consecutive days to the same guest) remain a standard-rated supply for VAT. If your total holiday let income exceeds the VAT threshold (£90,000 from April 2024), you must register. Standard residential lets are VAT-exempt. This is unchanged.
• Business rates vs Council Tax: Properties in England that are available for letting as self-catering accommodation for more than 140 days and actually let for more than 70 days per year are assessed for business rates, not Council Tax. In Wales, the thresholds are higher. This can be advantageous if the property qualifies for small business rate relief.
• Planning permission: Many local authorities, particularly in popular tourist areas, have introduced Article 4 directions requiring planning permission for short-term lets. This is entirely separate from the tax treatment.
• Furnished lets: Short-term holiday lets are inherently furnished, so the question of furnished vs unfurnished (relevant to wear-and-tear allowances for long-term lets) does not apply in the same way.

Alternative Strategies for Former FHL Owners

The abolition of the FHL regime prompts a fundamental review of how to hold and operate short-let properties. Key options:

1. Switch to Long-Term Let

Converting a former FHL to a standard assured shorthold tenancy simplifies compliance and may be more attractive in areas where short-let regulation is increasing. Section 24 applies equally, but long-term lets have lower operating costs and more predictable income.

2. Corporate Ownership

A limited company can still deduct mortgage interest in full against rental income (Section 24 does not apply to companies). Corporation tax at 19%–25% may be lower than your personal marginal rate. However, transferring an existing property into a company triggers SDLT and CGT, so the numbers need careful modelling.

3. Rent-a-Room Relief

If you let a room or rooms in your own home (including for holiday guests), rent-a-room relief exempts up to £7,500 per year of receipts from income tax. This is separate from FHL rules and continues unchanged.

4. Sell Before Further CGT Rate Changes

With BADR gone on FHL properties, there is less incentive to hold on for a discounted CGT rate. Review your exit strategy bearing in mind the current rates (18%/24%) and your overall portfolio position.

HMRC Guidance and References

HMRC has updated its property income guidance to reflect the abolition. Key references:

• HMRC Property Income Manual (PIM4000–PIM4140) — updated for abolition
• HMRC Brief 7 (2024) — confirming abolition from April 2025
• Finance (No.2) Act 2024 — legislative basis for abolition
• Helpsheet HS253 — Furnished Holiday Lettings (archived for 2024/25 and earlier; no longer published for 2025/26+)

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