Abolition of Furnished Holiday Lettings (FHL): What Individual Owners Need to Know

The Furnished Holiday Lettings tax regime was abolished by Finance Act 2025 Schedule 5 with effect from the 2025/26 tax year for income tax and from 6 April 2025 for capital gains tax (the commencement architecture sits at FA 2025 Sch 5 Part 5 paragraphs 12 and 13(4), verified against legislation.gov.uk on 2026-05-26). If you are an individual former-FHL owner, the 2025/26 SA100 cycle is the first return on the new rules. A number of arrangements you took for granted under FHL are gone, and a number of new arrangements need consideration before you file.

This page is a tight action checklist rather than a regime narrative. The companion rules overview page walks the broad post-abolition framework; the operational depth pages on capital allowances grandfathering, incorporation modelling, and the SDLT angle cover individual items in detail. This page is the consolidated checklist of what to do, in what order, before you file the 2025/26 SA100.

The four-question diagnostic

Before the eight-item checklist, four diagnostic questions filter which items apply to your specific situation:

1. Do you still own the former FHL at the 2025/26 SA100 filing date? If yes, all eight items potentially apply. If you disposed of the property between 6 April 2025 and 5 April 2026, items 1 to 5 do not apply (no 2025/26 income to report), but items 6 (CGT) and 8 (any replacement purchase SDLT) do.
2. How is the title held? Sole ownership simplifies items 1 (Section 24), 5 (pension earnings), and 6 (CGT). Joint ownership with a spouse or civil partner engages item 2 (Form 17). Joint ownership with anyone else (sibling, business partner, adult child) engages a different set of rules under the standard property-income joint-ownership architecture.
3. Is there a mortgage on the property? If yes, item 1 (Section 24) is the most material change to your tax position. If no mortgage, item 1 does not apply but items 2 to 8 still do.
4. Do you have a brought-forward capital allowances pool or brought-forward FHL losses? If yes, items 3 (losses) and 4 (capital allowances) require attention. Many former FHL owners with multi-year activity have both.

The eight checklist items below are ordered approximately by typical materiality on a 2025/26 SA100 cycle. Imperative phrasing is used to make the to-do nature explicit.

Item 1: Stop deducting mortgage interest as an expense (Section 24 ingress)

The single most material change on the 2025/26 SA100 for a mortgaged former-FHL owner. Under the historic FHL regime, mortgage interest was a deductible expense in the FHL business computation. From 6 April 2025, the Income Tax Act 2007 s.272A finance-cost restriction (the Section 24 mechanic that was introduced for residential property businesses by Finance (No.2) Act 2015 and which had not previously applied to FHL) bites on former-FHL income.

Practical SA100 reorientation:

• Report the gross rental income and the property expenses (excluding mortgage interest) in the standard UK Property pages.
• The mortgage interest is no longer reported as a deductible expense. Instead, enter the finance cost in the dedicated finance costs box on the UK Property pages.
• The finance cost gives a 20% tax credit against the tax due on the property profit, computed as 20% multiplied by the lower of the finance costs and the property income after other expenses.
• The reported property profit (before the finance-cost tax credit) is materially higher under the new mechanic, which can move a marginal-band landlord into the higher rate band on paper even where the cash flow is unchanged.

The change is most material for higher-rate-taxpayer former-FHL owners with significant mortgage interest. A higher-rate taxpayer who was previously deducting £8,000 of interest from a £24,000 net-of-other-expenses profit and paying 40% on the £16,000 net (£6,400) now reports £24,000 of property profit, pays 40% on the £24,000 (£9,600) and receives a £1,600 tax credit (20% of £8,000), netting £8,000 of tax. The £1,600 swing per year is the practical Section 24 ingress hit.

Item 2: Reset joint-ownership default and consider a Form 17 election

Joint owners of a former FHL (typically a married couple or civil partners) who historically split the FHL income on a basis other than 50/50 face an automatic reset. Without a Form 17 election in place, the 50/50 default applies to spouses and civil partners holding property jointly from 6 April 2025 (the architecture sits in Income Tax Act 2007 s.836 to s.837, which carries forward the pre-existing 50/50 default originating in ICTA 1988 s.836).

Where the actual beneficial split differs from 50/50 (typically evidenced by a declaration of trust), a Form 17 election must be filed with HMRC within 60 days of the declaration of trust evidencing the unequal beneficial split. The operational sequence:

1. Draft (or update) the declaration of trust evidencing the unequal beneficial split. Specialist solicitor input is typically needed where the underlying title needs an adjustment to align the legal and beneficial positions.
2. File Form 17 with HMRC within 60 days of the declaration date. The 60-day window is strict; a late Form 17 is invalid and the 50/50 default applies for the relevant tax year.
3. Reflect the new income split on each spouse's SA100 from the relevant tax-year start date.

The Form 17 election only operates for as long as the unequal beneficial split persists. Where the beneficial split subsequently changes (a further deed adjusting the split, or a divorce-driven transfer), a fresh Form 17 is needed within 60 days of the new declaration. Failure to file a fresh Form 17 reverts the split to the 50/50 default.

For couples where the historic FHL split was 25/75 or another non-equal pattern, the post-abolition 50/50 default can produce a worse tax outcome than the pre-abolition unequal split if the higher-rate-paying spouse holds the larger nominal share. The Form 17 route preserves the optimisation. A pre-existing declaration of trust may already be in place from the FHL years; if so, a Form 17 election can be filed within 60 days of the new tax year cycle to reflect the existing beneficial split.

Item 3: Loss treatment changes, sideways relief is gone

Brought-forward FHL losses survive the abolition but the loss treatment changes materially. Under the transitional provisions in FA 2025 Sch 5 Part 5, brought-forward FHL losses become property-business losses from 6 April 2025, ring-fenced to the UK or overseas property business as appropriate (UK FHL losses transfer to the UK property business; overseas FHL losses to the overseas property business).

The historic sideways relief route against general income is lost. This is the change that catches FHL owners who were using FHL losses to offset employment income or self-employment income in the same tax year; post-abolition, the loss can only be carried forward against future property income within the same property business.

Practical implications:

• Brought-forward FHL losses are reported on the 2025/26 SA100 as property-business losses carried forward, ring-fenced to the UK or overseas property business.
• Any plan to offset former-FHL losses against employment income on the 2025/26 SA100 will be disallowed. The losses carry forward only.
• The losses set off against future property profits in the standard property-business way; they do not expire.
• If you are disposing of the property in 2025/26, the brought-forward losses can be set against the rental profit for the year up to the disposal date; any unused losses fall away if there is no continuing UK property business after disposal (a residual UK property business of any kind preserves the loss).

The 'losses against employment income' misconception is widespread in pre-abolition FHL guidance that has not been updated; do not apply that mental model on the 2025/26 SA100.

Item 4: The grandfathered capital allowances pool keeps running

Pre-2025 FHL plant and machinery spend in the existing capital allowances pool is grandfathered under FA 2025 Sch 5 Part 3 and the Part 5 transitional provision. The existing pool continues writing down at the standard rates (18% main pool, 6% special-rate pool) in the post-abolition property business. The Capital Allowances Act 2001 s.35 dwelling-house restriction (which would otherwise disallow capital allowances on plant inside a dwelling-house) is disapplied for the grandfathered pool, preserving the historic FHL position for the existing assets.

What changes from 6 April 2025:

• No new plant or fixtures spend after 5 April 2025 enters the capital allowances pool. New furniture, fixtures, white goods, and similar expenditure on the former-FHL property is treated under the standard property-business rules from 6 April 2025: replacement of domestic items relief under Income Tax (Trading and Other Income) Act 2005 s.311A is the operative route for new spend on replacement items; original-acquisition spend on furnishings is not relievable.
• The grandfathered pool continues writing down indefinitely on the standard P&M timing until the pool is exhausted or the property is disposed of.
• On disposal of the property, the standard P&M disposal-event rules apply: any disposal value received for the plant is brought into the pool and a balancing allowance or balancing charge may arise.

The operational mechanics on the grandfathered pool are covered in depth on our companion FHL capital allowances post-April-2025 page. This checklist item flags the existence of the grandfathered pool; the depth page covers the execution.

Item 5: Former FHL profit no longer counts as 'relevant UK earnings' for pension contributions

Under Finance Act 2004 s.189, 'relevant UK earnings' for the purposes of relief-eligible personal pension contributions includes income from a trade, profession, or vocation, plus employment income and certain other categories. FHL profit, under the historic regime, counted as relevant UK earnings (the FHL regime was structured to mirror trade-like treatment for many tax purposes including pension contributions).

From 2025/26 onwards, former-FHL profit (now standard property-business income) no longer counts as relevant UK earnings under FA 2004 s.189. The practical implications:

• The £3,600 floor on relief-eligible pension contributions still applies regardless of earnings (the universal minimum that everyone with UK tax status can contribute and obtain relief on).
• Contributions above £3,600 require relevant UK earnings of at least the contribution amount (so a £20,000 relief-eligible contribution requires at least £20,000 of relevant UK earnings).
• FHL-rich pre-retirement landlords who were relying on FHL profit to support sizeable pension contributions will find the relief-eligible headroom shrunk from 2025/26.
• The annual allowance and the carry-forward rules remain unchanged; the change is to the earnings cap, not to the contribution limits themselves.

Review your pension contribution pattern for the 2025/26 and 2026/27 tax years against the new earnings-cap position. Where contribution levels need to step down to match the reduced relevant earnings, the change is best made at the start of the tax year rather than discovered at the SA100 filing stage.

Item 6: CGT on future disposal: 18% / 24% residential rates, no BADR

For disposals from 6 April 2025 onwards, the standard residential CGT rates apply: 18% on gains within the basic rate band, 24% on gains in the higher rate band. The 2024 Spring Budget cut the higher residential rate from 28% to 24% with effect from 6 April 2024; the 2024 Autumn Budget confirmed 18% on the basic-rate slice. Verify the rate-by-reference position at gov.uk at any specific disposal date.

Business Asset Disposal Relief is not available on former-FHL disposals from 6 April 2025. The historic BADR availability (formerly Entrepreneurs' Relief) which applied to FHL businesses ended on 5 April 2025. The 10% BADR rate is not available; the standard 18% / 24% residential rates apply on the full gain. The £1m lifetime BADR allowance, if previously partly used by FHL or other qualifying disposals, has its remaining capacity preserved but cannot be applied to post-April-2025 FHL disposals.

The anti-forestalling rules covered the 6 March 2024 (announcement) to 5 April 2025 (abolition) window. Disposals or unconditional contracts in that window that sought to lock in BADR before abolition are subject to the anti-forestalling provisions; the rules are not relevant for post-April-2025 disposals (the BADR is simply not available).

Practical implications:

• Plan for the higher effective CGT rate when modelling a sale. A £200,000 gain that would historically have attracted £20,000 of BADR-rate CGT now attracts £36,000 to £48,000 of standard-rate CGT depending on the buyer's other income.
• Annual exempt amount applies as normal (£3,000 for 2026/27, verify rate-by-reference at gov.uk).
• Within-couple share transfers under TCGA s.58 (no-gain-no-loss between spouses or civil partners) remain available and can be used to optimise the cross-couple CGT position before a sale.
• Holdover relief on a gift to a connected party (TCGA s.165 for business-asset gifts) is materially restricted because the property is no longer a qualifying business asset for FHL-era hold-over routes.

Item 7: Incorporation modelling, Section 24 does not bite companies

Section 24 finance-cost restriction is an income tax provision. Corporation tax computes property profit on a deduction basis: mortgage interest is fully deductible against rental income in the company computation. For a former-FHL owner with significant mortgage interest where Section 24 ingress has materially worsened the post-tax position, incorporation into a limited company can be relatively more attractive than it was pre-abolition.

The modelling must cover:

• TCGA 1992 s.162 incorporation relief. The relief defers the CGT on the transfer of the business to the company in exchange for shares. Eligibility requires the transfer of the whole property-letting 'business' (not just the asset). The 'business' analysis for a former-FHL property post-abolition is finely balanced and not all post-abolition property-letting activities qualify as a 'business' for s.162 purposes.
• SDLT on the transfer. The 5% additional-dwellings surcharge bites on the transfer to a non-natural person (the company); the transfer may be treated as a market-value transaction for SDLT purposes regardless of actual consideration; the SDLT charge can be substantial relative to the company's initial value.
• ATED. The Annual Tax on Enveloped Dwellings applies to residential property held by a non-natural person where the value exceeds the £500,000 threshold. ATED is an annual charge (£4,400 in the lowest band rising to £292,350+ in the top band for 2026/27). Property-rental-business exception is available under FA 2013 s.133 but requires annual relief claim and ongoing compliance.
• Corporation tax rates. The 19% small-profits rate applies to companies with annual profits under £50,000 from FA 2021. The 25% main rate applies above £250,000. Marginal relief applies in the £50,000 to £250,000 band, producing a 26.5% effective marginal rate (verify against the current Companies Act framework at the modelling date).
• Director's extraction. Profits in the company are not income to the individual until extracted as salary, dividend, or director's loan repayment. The combined effective rate of corporation tax plus dividend tax on extracted profit may approximate or exceed the personal income-tax rate on the same activity held personally; the modelling depends materially on extraction patterns.

Incorporation is a major restructuring with permanent consequences. The 's.162 plus SDLT plus ATED plus director extraction' modelling is specialist work and should be conducted before any commitment to incorporation. The decision turns on the buyer's specific tax profile, the property portfolio composition, and the intended holding pattern.

Item 8: SDLT on any new FHL acquisition: 5% additional-dwellings surcharge applies

For any post-abolition acquisition of a property to be operated as a holiday let, the 5% SDLT additional-dwellings surcharge (Finance Act 2025 s.51, effective from 31 October 2024) applies on top of standard SDLT where the buyer (or any joint buyer) already owns another dwelling worth £40,000 or more. FHL purchasers no longer have any SDLT carve-out post-abolition.

The practical numbers on a £350,000 FHL acquisition by an existing landlord:

• Standard SDLT: £125,000 at 0% + £125,000 at 2% + £100,000 at 5% = £7,500.
• 5% additional-dwellings surcharge: £350,000 at 5% = £17,500.
• Total SDLT: £25,000.

The £17,500 surcharge materially changes the post-tax economics of a new FHL acquisition. The acquisition decision should be modelled against the full post-abolition tax stack: SDLT on acquisition, Section 24 finance-cost restriction on operating profit, ATED if held through a company above the £500,000 threshold, and standard residential CGT rates on eventual disposal. The post-abolition FHL acquisition economics are materially less favourable than they were pre-October 2024.

Worked example: higher-rate-taxpayer joint-owning spouse, before and after abolition

Buyer AA and her husband own a Cornish cottage jointly (50/50 by declaration of trust) that they operated as a furnished holiday let until 5 April 2025. Buyer AA is a higher-rate (40%) taxpayer; her husband is a basic-rate (20%) taxpayer. Gross rental income: £30,000. Mortgage interest: £8,000. Other allowable expenses: £6,000. Net profit before interest: £24,000. Net profit after interest: £16,000.

Pre-abolition (2024/25, the FHL last year):

• FHL rules permitted income split on the actual beneficial split; the couple historically used 25% Buyer AA / 75% husband to optimise tax bands (no Form 17 was required under FHL).
• Net profit £16,000 (after interest deduction as an expense, since Section 24 did not apply to FHL).
• Buyer AA 25% share = £4,000; tax at 40% = £1,600.
• Husband 75% share = £12,000; tax at 20% = £2,400.
• Total household tax on FHL: £4,000.
• Capital allowances: £1,500 of writing-down allowances on the existing pool reduced taxable profit further.

Post-abolition (2025/26):

• Joint owners default to 50/50 from 6 April 2025; the historic 25/75 split is no longer the default. The couple consider a Form 17 election to preserve the unequal split but the declaration of trust was framed for FHL purposes and may need updating; assume for this example they retain a 50/50 actual split.
• Section 24 ingress: mortgage interest is not deductible as an expense; instead it gives a 20% tax credit against tax due.
• Net property profit (without interest deduction) = £30,000 minus £6,000 = £24,000.
• 50/50 split: Buyer AA share = £12,000; husband share = £12,000.
• Buyer AA tax: £12,000 at 40% = £4,800. Less 20% tax credit on her 50% of the £8,000 interest (£4,000) = £800. Net tax = £4,000.
• Husband tax: £12,000 at 20% = £2,400. Less 20% tax credit on his £4,000 interest = £800. Net tax = £1,600.
• Total household tax on the former FHL: £5,600.
• Capital allowances pool (grandfathered): £1,500 of writing-down allowances continues, a small offset that does not reverse the Section 24 hit.

The tax increase from abolition is £1,600 per year on this property. The drivers are Section 24 ingress on Buyer AA's higher-rate slice (the change from a deduction at 40% to a tax credit at 20%, on the portion of interest allocated to her) and the loss of unequal-split optimisation. The actions available to reduce the increase:

• Updated declaration of trust shifting beneficial ownership materially toward the basic-rate spouse, supported by a Form 17 election within the 60-day window.
• Incorporation into a limited company (Section 24 does not bite companies); but the s.162 CGT relief, SDLT on transfer, and ATED need to be modelled before committing.
• Disposal of the property and reinvestment of capital in non-residential property (commercial property, mixed-use, or a non-property asset class) where the Section 24 regime does not apply.
• Acceptance of the new economics and adjustment of the operating model (faster mortgage paydown, rate-renegotiation, or repricing of the holiday-let rental).

Cross-references and where to take advice

The eight-item action checklist above is the consolidated to-do list for the 2025/26 SA100 cycle. Items 1, 2, 3, and 5 affect the SA100 filing directly; items 4 and 7 may affect the long-term structure; items 6 and 8 are forward-looking for any planned disposal or new acquisition.

For the broad rules-overview companion, see our FHL post-abolition rules overview page. For the operational depth on capital allowances grandfathering (item 4), see our FHL capital allowances page. For the incorporation modelling depth (item 7), see our FHL incorporation page. For the SDLT angle on new FHL acquisitions (item 8), see our SDLT FHL post-abolition page.

Specialist advice is most valuable on the 2025/26 SA100 cycle for: higher-rate-taxpayer former-FHL owners with significant mortgage interest (item 1 modelling); joint-owning couples needing Form 17 to preserve unequal splits (item 2 sequencing); landlords with brought-forward FHL losses considering disposal in 2025/26 (item 3 loss-preservation); and landlords weighing incorporation (item 7 modelling). The pre-filing planning window is 6 April 2026 to 31 January 2027 for the 2025/26 SA100; the actions that need to be taken before the tax year end (5 April 2026) are limited but real (Form 17 elections, declarations of trust, year-end expenditure decisions).