FURNISHED HOLIDAY LETTINGS

The special tax rules for furnished holiday lettings (FHLs) were abolished from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax. If you own a holiday let, it is now taxed in the same way as any other residential rental property — the significant advantages the old regime offered no longer apply. Your first Self Assessment return under the new rules, covering the 2025/26 tax year, is due by 31 January 2027.

This page sets out what's changed and what to consider if you own, or are planning to sell, a holiday letting property.

What's been lost:  The old regime treated qualifying FHLs as a trade for most tax purposes, provided the property met occupancy thresholds (available 210 days, let 105 days a year). That distinct treatment has now gone entirely — the occupancy tests are no longer relevant, because there's no longer a separate FHL category to qualify for.

The main changes:

Mortgage interest relief — full deduction of finance costs from profits is no longer available. Like other residential landlords, you now only get a 20% tax credit on interest paid, rather than deducting it in full — a significant increase in tax for higher and additional rate taxpayers with borrowing.

Capital allowances — you can no longer claim capital allowances on furniture, fixtures, fittings, or integral features. Instead, the more limited "replacement of domestic items relief" applies (the same relief available to any residential landlord), which only covers replacing existing items, not the initial cost of furnishing a property.

Capital Gains Tax on sale — Business Asset Disposal Relief (the 10% rate on qualifying gains) is no longer available on disposal, nor is rollover relief for reinvesting proceeds into a new qualifying property. Gains are now taxed at standard residential property CGT rates (18%/24%).

Profit-sharing between spouses/civil partners — flexible allocation of profits is gone. Jointly owned property now defaults to the standard 50:50 split unless you've taken specific action (such as a Form 17 election reflecting actual ownership shares) to preserve a different arrangement.

Pension contributions — FHL profits no longer count as relevant earnings for pension purposes, so you can no longer make tax-advantaged pension contributions based on holiday letting income.

Inheritance Tax Business Property Relief — no longer automatically available in the way it was for qualifying FHLs.

One easement: FHL losses that previously could only be offset against future FHL profits can now be used against your other UK property income, which may help owners who hold a mix of holiday lets and standard rentals.

If you own a furnished holiday let, it's worth reviewing your position now — particularly your finance structure, any planned refurbishment spend, joint ownership arrangements, and exit plans if you're considering selling. We can help you understand exactly how these changes affect your specific situation and plan accordingly.

To discuss how we can help, please contact us on 01332 202660.