Headline update: The Furnished Holiday Lettings tax regime was abolished from 6 April 2025 (1 April 2025 for Corporation Tax) under Finance (No. 2) Act 2024. The four headline FHL advantages (full mortgage interest deduction, capital allowances on plant and machinery, Business Asset Disposal Relief at 10% CGT, and pension-relevant earnings) no longer apply. If you held a property that qualified as an FHL up to the 2024-25 tax year, the 2025-26 return you file next is the first one under the new rules. This guide explains the change, the transitional provisions, the unchanged SDLT position (now at the 5% additional dwellings surcharge rather than 3%, separate change), and the practical decisions to make.
What was the FHL regime and why was it abolished?
Until 5 April 2025, furnished holiday lets meeting strict day-counting tests were treated as a trade rather than a property business. Qualifying properties had to be available for commercial letting for at least 210 days per tax year, actually let for at least 105 days, and not occupied by the same tenant for more than 31 consecutive days in any seven-month period. Properties below the 105-day test could still qualify in some years via the averaging election or the period-of-grace election.
This trade-style treatment gave FHL landlords four advantages unavailable to standard BTL:
- Full deduction of mortgage interest and other finance costs against rental profit (bypassing Section 24).
- Capital allowances on fixtures, fittings, plant, and equipment, including the Annual Investment Allowance for immediate write-off.
- Business Asset Disposal Relief at 10% CGT on sale (subject to the £1 million lifetime limit), plus rollover relief and gift relief.
- FHL profits counted as "relevant UK earnings" for pension contribution purposes.
The abolition was announced at the Spring Budget 2024 under the previous government and confirmed by the incoming Labour government in summer 2024, becoming law in Finance (No. 2) Act 2024. The stated policy rationale was that FHL relief distorted the housing market in tourist areas and amounted to an Exchequer subsidy for second-home owners. The change went live as planned on 6 April 2025.
What changed from 6 April 2025
1. Section 24 finance cost restriction applies
The single biggest change. Mortgage interest, broker fees, arrangement fees, and other finance costs on an individually-held holiday let no longer reduce taxable rental profit. Instead they convert to a 20% basic-rate tax reducer on the personal SA100. For a 40% higher rate landlord with £30,000 of annual mortgage interest, that is a £6,000 a year increase in net tax compared with the old FHL position (£30,000 × 40% = £12,000 of relief lost, replaced by £30,000 × 20% = £6,000 of credit).
Limited companies are not in scope of Section 24, so company-held holiday lets still get full mortgage interest deduction inside the company.
2. No new capital allowances
From 6 April 2025 you cannot bring new qualifying expenditure (new fridge, new sofa, new heat pump, new fitted carpets) into a capital allowances pool for a holiday let. The Annual Investment Allowance no longer applies. Replacement of Domestic Items Relief continues to apply, but only on a like-for-like replacement of an existing item (it does not cover initial fit-out, and improvement elements are excluded). See HMRC's Property Income Manual for the mechanics of RDIR.
3. CGT business reliefs withdrawn
Business Asset Disposal Relief at 10% no longer applies to FHL disposals on or after 6 April 2025. Standard residential CGT rates of 18% (basic rate) and 24% (higher and additional rate) apply, after the £3,000 annual exempt amount. Rollover relief (used by some FHL owners trading up between holiday cottages) is gone. Gift relief on a transfer between family members is gone, so a parent transferring an FHL to an adult child now crystallises the full gain immediately (at market value, despite no cash changing hands).
The 60-day reporting and payment window through the HMRC CGT on UK property service applies to all residential disposals including former FHLs.
4. Pension earnings status lost
FHL profit no longer qualifies as relevant UK earnings for personal pension contribution purposes. If your only earned income was FHL profit, your tax-relieved pension contribution cap drops to £3,600 a year (the basic floor available regardless of earnings). Where you also have employment or self-employment income, that other income continues to provide pension headroom.
Transitional provisions worth knowing
- Existing capital allowance pools. Writing-down allowance continues at the normal annual percentage. You just cannot add new expenditure.
- FHL losses brought forward. Available against future profits from the same property business but now treated as property losses, not trading losses. The most punitive change here is the loss of any prior ability to set FHL losses sideways against general income.
- Pre-6 April 2025 disposals. The tax point for CGT is exchange of contracts. If you exchanged on or before 5 April 2025 (even with completion after), the old rules apply to that disposal. Get the contract date confirmed before filing.
- Anti-forestalling rules. HMRC introduced specific rules to block taxpayers from artificially crystallising disposals or restructuring to bank the old reliefs in the 12 months before abolition. If you did any pre-abolition restructuring, get advice on whether the anti-forestalling provisions catch your transaction.
Impact on different types of holiday let owner
Single-property landlord (one cottage, mortgaged)
Hardest hit. The combination of Section 24 finance restriction and loss of capital allowances often turns a previously profitable holiday cottage into a marginal investment after tax. Run the after-tax cash flow with your real figures before deciding whether to keep, switch to AST, or sell.
Portfolio holiday let landlord (multiple properties, ungeared or low gearing)
Section 24 bites less when mortgage interest is low. The main impact is loss of BADR on eventual sale and loss of capital allowances on new expenditure. If you are five or more properties actively managed and plan to keep operating, incorporation (with Section 162 relief on the property transfer) often makes sense.
Coastal and tourist-town owners
Cornwall, Pembrokeshire, the Lake District, Norfolk Coast, and similar areas where the gross yield premium for short-stay over AST is large remain economic in many cases. The tax change reduces but does not eliminate the holiday-let premium. Local council premium tax (council tax second-home premium, up to 100% extra in England, up to 300% in Wales) is often the more decisive factor.
Owners of converted barns, granny annexes, and small outbuildings
These often fail the new economic test once Section 24 and capital allowance losses are factored in. Many landlords are reverting these to AST or to family use.
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SDLT on holiday let purchases (separate change, easy to confuse)
SDLT rules for holiday let purchases did not change with the FHL abolition. They did change separately on 31 October 2024 when the additional dwellings surcharge rose from 3% to 5%. So if you are buying a holiday let after that date, the SDLT cost is materially higher than older guides describe.
| Property price | Standard residential SDLT (England, after 1 April 2025) | 5% additional dwellings surcharge | Total SDLT |
|---|---|---|---|
| £250,000 | £2,500 | £12,500 | £15,000 |
| £400,000 | £10,000 | £20,000 | £30,000 |
| £600,000 | £20,000 | £30,000 | £50,000 |
| £800,000 | £30,000 | £40,000 | £70,000 |
SDLT bands changed on 1 April 2025 when the temporary nil-rate threshold of £250,000 reverted to £125,000. The figures above use the post-1 April 2025 bands.
Welsh purchases use Land Transaction Tax with higher additional rates, and Scottish purchases use Land and Buildings Transaction Tax with the Additional Dwelling Supplement. Both have their own rate schedules.
For a deeper look see our SDLT buy-to-let surcharge guide.
Allowable expenses for a former FHL now taxed as ordinary property income
The deductible expenses list is now identical to standard buy-to-let:
- Letting and management agent fees, including booking-platform commission (Airbnb, Vrbo, Sykes, etc.)
- Cleaning, laundry, gardening, and turnover services between guests
- Buildings and contents insurance, including specialist holiday let cover
- Council tax or business rates during void periods, water rates, gas, electricity, broadband
- Repairs and maintenance (general redecoration, fixing a boiler, replacing roof tiles)
- Advertising and listing fees
- Accountancy and bookkeeping fees
- Replacement of Domestic Items Relief on furnishings (like-for-like replacement of an existing item, no upgrade element)
- Mortgage interest as a 20% tax reducer (Section 24), not as a direct deduction
Expenses you cannot claim
- New capital allowances on plant and machinery (capital allowances pool closed from 6 April 2025)
- Personal use periods (you must apportion expenses by occupancy if you stay yourself)
- Capital improvements (these go on the CGT base cost, not the income return)
- Your own labour (no deduction for time spent cleaning or managing yourself)
What former FHL landlords should do now
- Recalculate after-tax cash flow under the new regime. Use 2025-26 actuals (or projected) with Section 24 applied. If the property turns marginal, the keep-versus-sell question is real.
- Confirm capital allowance pool position. Get your accountant to document the brought-forward pool clearly. Continued writing-down allowance is still worth claiming each year.
- Reassess incorporation. If you are heavily geared or own multiple properties, the post-FHL tax position often makes a company structure look more attractive than it did under the old rules.
- Review pension funding plans. If FHL was your main earned income, you may need alternative routes (employment, self-employment, or accepting the £3,600 floor) for tax-relieved pension contributions.
- Decide on operating model. Stay short-stay, switch to AST, sell, or operate via a company. The right answer is property-specific.
- Get on MTD-compatible software if you are not already. The £50,000 threshold went live on 6 April 2026, dropping to £30,000 in April 2027 and £20,000 in April 2028.