If you own a furnished holiday let (FHL), your tax position may look very different from 2025/26 onwards.
From 6 April 2025, the government abolished the FHL tax regime, meaning they are no longer treated separately for tax purposes. Instead, they are generally taxed in the same way as other residential rental properties.
With the first affected tax returns due by 31 January 2027, now is the time to understand what has changed.
Who is affected?
These changes apply to:
- Owners of UK furnished holiday lets
- Owners of furnished holiday lets in the EEA
- Joint property owners, including married couples and civil partners
- Individuals considering the sale of a former FHL
What has changed?
Finance costs – Mortgage interest and finance costs can no longer be deducted in full when calculating taxable profits. Instead, relief is given as a basic rate tax reduction.
For higher and additional rate taxpayers, this could increase the amount of tax payable.
Capital allowances – The generous capital allowances rules available to FHL owners have largely disappeared. Instead, landlords may be able to claim replacement of domestic items relief when replacing furniture, carpets or appliances.
Pension contributions – FHL profits no longer count as relevant UK earnings for pension tax relief purposes. If you’ve been using holiday let income to support pension contributions, it may be worth reviewing your position.
Jointly owned properties – Income from jointly owned former FHLs is now generally taxed ‘50:50’ between spouses or civil partners unless a valid Form 17 declaration is in place and the property is owned in unequal shares.
What can still be carried forward?
Some reliefs remain available:
- Unrelieved capital allowances from before 6 April 2025 can continue to be claimed.
- Brought-forward losses can generally be carried forward and used against future property business profits, subject to the relevant rules.
Selling a furnished holiday let?
The abolition of the FHL regime also affects capital gains tax (CGT) reliefs.
For disposals from 6 April 2025 onwards, reliefs such as Business Asset Disposal Relief (BADR), roll-over relief and gift relief are generally no longer available.
There is one important exception. If the FHL business ceased before 6 April 2025 and the property is sold within three years of cessation, a BADR claim may still be possible.
Important: If you’re planning to sell a former furnished holiday let, seek advice before doing so. The tax reliefs previously available may no longer apply.
Next steps
If you own a furnished holiday let, you may want to consider:
- Reviewing how the new rules affect your taxable profits
- Checking for losses or capital allowances that can be carried forward
- Reviewing ownership structures where a property is jointly owned
- Taking advice before selling a former FHL property
Need advice?
The abolition of the furnished holiday let regime could affect your income tax position, pension planning and future property sale plans.
If you’d like to understand how the changes affect you, get in touch with property tax expert, Jonathan Cunningham, by clicking the button below.
