The Furnished Holiday Let (FHL) tax regime, which gave holiday let owners a genuinely more favourable tax position than standard landlords, ended abruptly in 2025. This guide covers exactly what was lost, a worked example showing the real tax cost, and what a holiday let owner can still do going forward.
Figures below reflect Finance Act 2025 and published HMRC and accountancy guidance, current to mid-2026. This is general education, not tax advice specific to your holiday let; get advice from a qualified accountant on your own transition.
1. What ended, and when
The FHL regime, which had treated qualifying holiday lettings as a trade for various tax purposes rather than simply as rental property income, was abolished by the Finance Act 2025, effective 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. From that date, holiday letting income, whether through Airbnb, direct bookings, or any other channel, is taxed exactly like standard UK property income, with no separate FHL category remaining on the Self Assessment return at all.
Unlike some tax changes that phase in gradually or protect existing arrangements, this was a hard deadline: it made no difference how long a property had operated as a genuinely qualifying FHL beforehand. Every holiday let moved onto standard property income tax rules from the same date, all at once.
2. What holiday let owners actually lost
| Previous FHL benefit | Position from 6 April 2025 |
|---|---|
| Full mortgage interest deduction | Restricted to a 20% tax credit under Section 24, the same rule that applies to individual buy-to-let landlords |
| 10% CGT rate via Business Asset Disposal Relief on sale | Standard residential property CGT rates apply: 18% basic rate, 24% higher rate |
| Capital allowances (including 100% Annual Investment Allowance) on furniture and equipment | Replacement of Domestic Items Relief only, covering like-for-like replacement, not original purchases or upgrades |
| Profits counted as relevant UK earnings for pension contributions | Now treated as investment income; no longer supports tax-advantaged pension contributions |
| Rollover and gift holdover relief on disposal | No longer available; anti-forestalling rules also block these reliefs on certain contracts exchanged before the deadline but completing after it, between connected persons |
3. A worked example
Consider a holiday let generating £18,000 in annual rental income, with £8,000 in mortgage interest, owned by a higher-rate taxpayer.
Under the old FHL rules: net profit was calculated as £18,000 minus £8,000 interest = £10,000, taxed at 40% = £4,000 tax.
Under Section 24, from 2025/26: the full £18,000 is taxed at 40% = £7,200, minus a 20% credit on the £8,000 interest (£1,600) = £5,600 actual tax.
That's an additional £1,600 a year in tax, on identical underlying income and costs, purely as a result of the regime change. See our Property Tax Timeline for the full mechanics of how Section 24 works and why it produces this effect.
4. Capital allowances: what happens to what you'd already claimed
If you'd built up a capital allowances pool under the old FHL rules, that existing pool continues to run off under writing-down allowances as a transitional measure, you don't lose relief already claimed. However, no new capital expenditure can be added to that pool from 6 April 2025 onwards. Going forward, replacing existing furniture and equipment on a like-for-like basis falls under Replacement of Domestic Items Relief instead, the same relief available to any standard furnished residential letting, which notably doesn't cover the original furnishing of a property or genuine upgrades, only direct replacements.
5. What's still available
Ordinary allowable expenses remain fully deductible exactly as for any other rental property: letting agent commission, cleaning, maintenance and repairs, insurance, and utility costs where not recharged to guests. This is a genuine, if more modest, silver lining, holiday let owners haven't lost the ability to deduct their day-to-day running costs, only the specific trade-like tax advantages the FHL regime formerly provided.
6. Should you move your holiday let into a company?
A limited company structure avoids Section 24's finance-cost restriction entirely, since it applies specifically to individual landlords, and operates under different capital allowances rules that may be more favourable. This is a genuine option some holiday let owners are now considering for the first time, but incorporation typically triggers a Capital Gains Tax event on the transfer at market value, and often requires refinancing the property within the company structure. Whether this makes sense depends heavily on portfolio size, income level, and your exit plans; see our Property Tax Timeline for the wider incorporation trend and trade-offs, and take professional advice specific to your own holiday let before proceeding.
7. Frequently asked questions
When was the Furnished Holiday Let tax regime abolished?
From 6 April 2025 for Income Tax and Capital Gains Tax purposes, and 1 April 2025 for Corporation Tax. There were no transitional grandfathering provisions, meaning every existing furnished holiday let moved onto standard property income tax rules from that date, regardless of how long it had operated as a qualifying FHL beforehand.
Can I still deduct mortgage interest on my holiday let?
Not as a direct expense deduction. Since the abolition, mortgage interest on a former FHL is treated the same as any other individually-held rental property under Section 24, meaning you receive a 20% tax credit on the interest rather than deducting it from taxable profit, which increases the tax bill for higher and additional rate taxpayers specifically.
What happened to capital allowances I'd already claimed on my holiday let?
Existing capital allowance pools continue to run off on a writing-down basis under transitional rules, but no new capital expenditure can be added to a pool from 6 April 2025 onwards. New furniture and equipment purchases instead fall under Replacement of Domestic Items Relief, which only covers like-for-like replacement of existing items, not original furnishing or upgrades.
Does my holiday let still qualify for the 10% Business Asset Disposal Relief CGT rate?
No. Business Asset Disposal Relief no longer applies to holiday lets sold after the abolition date. Disposals are now taxed at standard residential property Capital Gains Tax rates, 18% for basic rate taxpayers and 24% for higher rate taxpayers, rather than the previous 10% rate.
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