Big Tax Changes Ahead for Furnished Holiday Lettings

This page surveys, as at the 2026/27 tax year, the eight separate tax changes that have hit or are scheduled to hit former Furnished Holiday Letting operators across the 2024 to 2028 window. Each is treated in chronological date order rather than thematically; the topic-led survey sits on our companion FHL tax rules and abolition page. The date-led organisation is useful because the changes interact: a 2025-26 Section 24 ingress costs more if the operator is also caught by the 2027 property-income surcharge, and a 2026 IHT cap reshape interacts with the 2027 pensions-in-IHT change for retirement planning. Treat the timeline as a series of partially-overlapping cliffs rather than a single event.

The cumulative effect on a typical higher-rate-taxpayer two-property operator with leverage is material: net post-tax cash position deteriorates by approximately 60% across the window, driven by Section 24 ingress, BADR cliff on disposal, pension-relevant-UK-earnings collapse, the property-income surcharge, and pensions-in-IHT commencement, partly offset (for some operators) by an incorporation route. The cumulative worked example at the end of this page walks the figures.

Two statutory anchors recur throughout the timeline and are worth flagging at the outset. The FHL abolition itself is Finance Act 2025 Schedule 5, not FA 2024 Schedule 5 (a separate Schedule on museum and gallery exhibitions). The 31 October 2024 SDLT additional-dwellings surcharge rise from 3% to 5% is at FA 2025 s.51(1)-(2) amending FA 2003 Schedule 4ZA in the following parliamentary session, not F(No.2) 2024 as commonly mis-cited. Both points matter when sourcing or peer-checking the timeline against draft notes or third-party commentary.

6 March 2024: abolition announcement and anti-forestalling commencement

At the Spring Budget 2024, the previous Government announced the abolition of the Furnished Holiday Letting tax regime for tax year 2025-26 onwards. The announcement itself did not change the tax position for any operator immediately; the income-tax, corporation-tax, CGT, and capital-allowances changes all took effect at the relevant 2025 commencement dates. The announcement did, however, trigger anti-forestalling provisions for the 6 March 2024 to 5 April 2025 window.

The anti-forestalling rule (now codified at FA 2025 Sch 5 paragraph 14 per HMRC CG73505) blocks Business Asset Disposal Relief on pre-abolition disposals that proceed via unconditional contract where the contract had no genuine commercial purpose and connected parties were involved. The rule was aimed at sellers who would otherwise have crystallised a 10% BADR gain in the announcement window solely to escape the post-abolition residential CGT rates. Genuine arm's-length disposals with unconnected buyers in the same window were not within the anti-forestalling scope.

The announcement also locked in a planning horizon: operators considering disposal, incorporation, or restructure had a year to act under the old rules. The 5 April 2025 cliff was visible from the announcement date.

30 October 2024: CGT residential rate moves to 18% / 24%

The Autumn Budget 2024 changed the headline residential CGT rates with effect from 30 October 2024: TCGA 1992 s.4 was amended to set 18% on gains within the basic-rate band and 24% on gains within the higher and additional-rate bands. The previous spread had been 18% and 28% (the residential premium); the higher rate fell to 24%.

For pre-abolition FHL disposals where BADR was still available, the rate change interacted with BADR planning: an operator with a £200,000 gain inside BADR was paying 10% (£20,000) before the BADR rate uplift began on 6 April 2025, irrespective of the s.4 rates. For post-abolition disposals where BADR is no longer available, the s.4 rates stand. The £3,000 annual exempt amount applies in the standard way.

The interaction with BADR rate uplift is worth flagging. BADR moved from 10% to 14% from 6 April 2025 and to 18% from 6 April 2026 under FA 2024 changes. For operators who were within the announcement-to-abolition window with a BADR-eligible FHL gain, the 6 April 2025 BADR-rate uplift partially erodes the BADR advantage on top of the abolition itself; the residential s.4 rate (24% at higher-rate band) becomes proportionately less unfavourable. None of this helps post-abolition operators with FHL stock; the BADR rate at any level is academic where BADR is unavailable.

31 October 2024: SDLT additional-dwellings surcharge to 5%

The day after the Autumn Budget 2024, the SDLT additional-dwellings surcharge rose from 3% to 5% under FA 2025 s.51(1)-(2), amending FA 2003 Schedule 4ZA. The surcharge applies to any acquisition by an individual or company that already owns another residential property at completion (the underlying additional-dwellings architecture has been in place since April 2016; the 5% rate is the most recent step).

For FHL purchasers (who, by definition, own another residential property if they already have a portfolio), the surcharge bites in full. A £400,000 FHL acquisition by an existing landlord generates £20,000 of surcharge on top of the standard SDLT (about £7,500), for a total SDLT of about £27,500. The £8,000 increase versus the pre-31-October-2024 position is real money and materially shifts the post-tax economics of any new acquisition.

For company purchasers of a single dwelling above £500,000, the 15% FA 2003 Schedule 4A super-charge applies in parallel and dominates. A £750,000 acquisition by a company attracts £112,500 of SDLT under the flat 15% rate; the 5% surcharge mechanic is subsumed into the 15% flat charge for that tier. Property-rental-business relief from the 15% charge is available where the property is held for qualifying commercial-letting activity, but the relief carries the same connected-party-occupation prohibition that applies to ATED relief.

1 April 2025: corporation tax commencement of FHL abolition

FA 2025 Sch 5 Part 5 paragraph 12 sets commencement for the corporation-tax amendments at accounting periods beginning on or after 1 April 2025. Companies with a 31 March year-end transition cleanly into the post-abolition period from 1 April 2025; companies with other year-ends (most commonly 31 December) have a deemed cessation at the 31 March 2025 boundary and a new property business commenced from 1 April 2025.

The company-side substantive consequences are walked on our companion taxation of FHLs in a company page. The headline point for the timeline survey: from 1 April 2025, a company holding former-FHL stock falls within the ordinary UK property business regime for corporation-tax purposes, with full mortgage interest deductibility intact (Section 24 does not apply to companies) and capital allowances pools grandfathered under FA 2025 Sch 5 Part 3 (HMRC CA20025 sets out a worked example).

6 April 2025: income tax and CGT commencement

For individuals, partnerships of individuals, and trusts, FA 2025 Sch 5 Part 5 commences from tax year 2025-26 onwards (6 April 2025). The substantive personal-side changes are five-fold, walked in depth on our companion FHL abolition action checklist page:

• Section 24 ingress. Former-FHL mortgage interest converts from a deductible expense to a 20% tax credit under ITA 2007 s.272A. The reported property profit on SA100 rises by the full interest amount and the tax-credit-restoration only partially offsets the headline tax charge.
• BADR cliff on disposal. BADR is no longer available on FHL disposals from 6 April 2025; the historic 10% rate (rising to 14% from 6 April 2025 anyway) is unavailable; standard residential CGT rates apply.
• Capital allowances dwelling-house restriction. The CAA 2001 s.15(1)(c) and (1)(da) qualifying-activity carve-outs are omitted by FA 2025 Sch 5 Part 3; the s.35 dwelling-house restriction bites on new post-1-April-2025 plant spend. The grandfathered pool from pre-1-April-2025 spend continues writing down at 18% / 6% per HMRC CA20025.
• Pension-relevant-UK-earnings collapse. FA 2004 s.189(2)(ba) and (bb) are omitted; former-FHL profit no longer counts as relevant UK earnings for pension contribution purposes. The £3,600 floor still applies. Walked in depth on our FHL abolition pension contributions page.
• End of sideways loss relief. Brought-forward FHL losses become property-business losses ring-fenced to the UK or overseas property business. Set-off against employment income or general income (the historic FHL trade-equivalence overlay) is no longer available.

The 6 April 2025 cliff is the most material single date in the timeline. The four advantages that distinguished FHL from ordinary residential letting are removed in a single tax-year boundary. Operators who did not act before the cliff (incorporation, disposal, declaration-of-trust reshape) face the post-abolition stack from their first 2025/26 SA100.

6 April 2026: IHT BPR/APR cap and MTD-ITSA staging at £50,000

Two material changes on the same date.

First, the IHT combined £1m BPR plus APR cap commences. The previously-unlimited 100% relief on qualifying agricultural and business property is capped at £1m combined per estate; excess gets 50% relief (an effective 20% IHT). Standard residential BTL never qualified for BPR (the Pawson line of authority on the trading-versus-investment distinction). Post-abolition former FHL categorically does not qualify either (the FHL trade-equivalence overlay was the mechanism that occasionally surfaced BPR for serviced-accommodation operators, and that overlay is gone). The change affects landed estates and trading-business owners; it rarely affects standard FHL operators directly, but landed-FHL portfolios with associated farming or trading land are within scope.

Second, MTD-ITSA staging at the £50,000 threshold commences. Individual former-FHL operators with combined trading plus property-business gross qualifying income above £50,000 must use MTD-compatible software, file quarterly updates, and submit a year-end finalisation. For a two-property former-FHL operator with £75,000 of gross rent, MTD-ITSA bites from 6 April 2026; the operator must select MTD-compatible software and align quarterly filing with the property-business accounting cycle. The SI cite chain has been amended multiple times (SI 2017/1018 with subsequent amending SIs); verify the current authoritative cite at the planning date.

6 April 2027: property-income surcharge and pensions-in-IHT

Both changes were announced at Autumn Budget 2024 and are scheduled in draft Finance Act 2026 at the time of writing. Per the house framing rule on announced-but-unenacted measures, treat as SCHEDULED not crystallised until Royal Assent; plan against the rates but do not assert as confirmed law.

The property-income surcharge is a 2% surcharge on UK property income on top of standard income-tax bands, producing effective rates of 22% basic, 42% higher, and 47% additional. Former FHL income (now UK property business income) is in scope. The cumulative worked example below shows the incremental cost on a higher-rate operator at approximately £1,000 per year on £50,000 of property profit. Operators planning around the 2027/28 SA100 cycle should model the surcharge as a likely-but-not-certain layer; the 2025/26 and 2026/27 cycles are at the current rates regardless.

Pensions-in-IHT commences on the same date: unused defined-contribution pension funds become IHT-relevant from 6 April 2027 (currently outside IHT under the post-2024 pensions architecture). The change affects former-FHL operators whose retirement plan was to save into a pension via FHL relevant-UK-earnings, draw down in retirement, and leave the residual to children IHT-free. The first half of that plan was already broken at 5 April 2025 (relevant-UK-earnings collapse); the IHT side compounds the problem from 6 April 2027. Combined effect on succession planning is material.

6 April 2028: MTD-ITSA threshold drops to £20,000

The third staging step in MTD-ITSA: the threshold drops to £20,000 of combined trading plus property gross qualifying income. Operators below the previous £30,000 staging step are pulled into MTD-ITSA from this date. A single former-FHL operator with £25,000 of gross rent plus £12,000 of pension drawdown is not inside MTD-ITSA at 6 April 2026 (under the £50,000 threshold) or 6 April 2027 (under the £30,000 threshold) but is inside it at 6 April 2028. Pension drawdown is not itself qualifying income but combines with rental for the threshold test.

Verify the exact 2028 threshold and SI cite chain at the planning date. Staging dates have shifted multiple times since the original MTD-ITSA announcements; the current schedule is the third or fourth iteration and may move again. Operators near a threshold boundary should plan for the lower threshold defensively even where a later deferral is announced.

Cumulative-effect worked example: higher-rate two-property operator

Operator CC, individual, holds two former-FHL cottages in the Lake District. Tax year 2024-25 figures: gross rent £75,000; mortgage interest £25,000; operating costs (cleaning, agent, repairs) £20,000; brought-forward capital allowances pool £30,000 main pool. Higher-rate taxpayer (other income above £50,270 threshold). The walk-through across the window:

• 2024-25 (pre-abolition, FHL still operative): profit = £75,000 minus £25,000 interest minus £20,000 operating minus £5,400 WDA (18% of £30,000 pool) = £24,600. Tax at 40% = £9,840. BADR-eligible on sale (subject to qualifying-day tests). Pension-relevant-UK-earnings of £24,600.
• 2025-26 (Section 24 ingress; grandfathered allowances continue; BADR cliff; pension RUE collapse): taxable property profit = £75,000 minus £20,000 operating minus £4,428 WDA (18% of reduced £24,600 grandfathered pool) = £50,572 (interest no longer deducted as expense). Tax at 40% = £20,229. Less 20% Section 24 tax credit on £25,000 interest = £5,000 credit. Net tax = £15,229. Net additional tax 2025-26 versus 2024-25 = £5,389 increase. Plus pension-RUE collapse (separate cash impact, see B14 page).
• 2026-27 (steady-state plus MTD-ITSA): Section 24 mechanic unchanged. Tax broadly unchanged at about £15,229 absent rent rises. MTD-ITSA at £50,000 threshold: operator must use MTD-compatible software and file quarterly. Compliance cost rises (software subscription, additional bookkeeping cycles); income tax cost unchanged.
• 2027-28 (property-income surcharge scheduled in draft FA 2026; treat as scheduled, not crystallised): if surcharge enacted, 2% on UK property income produces effective higher rate of 42% on the £50,572 property profit. Tax at 42% on £50,572 = £21,240. Less £5,000 Section 24 credit = £16,240. Incremental annual cost from surcharge alone = £1,011 above the 2025-26 position. Plus pensions-in-IHT commencement (succession planning impact, not annual cash).
• 2028-29 (MTD-ITSA £20,000 staging): operator already inside MTD-ITSA at 2026-27. No additional impact at this point on this profile; affects lower-turnover operators previously outside the threshold.

Cumulative annual tax position 2024-25 to 2027-28: £9,840 rising to £16,240, an incremental £6,400 per year. On top: pension-headroom loss (about £8,000 of cash impact on the relief side per year), IHT planning disruption (succession-side re-modelling required), and BADR loss on any planned disposal. The cumulative net-cash position deteriorates by approximately 60% versus the pre-abolition baseline for a typical leveraged two-property operator at this profile.

The incorporation offset

For the same operator who incorporates the portfolio into a UK Ltd company on 6 April 2025: CT at marginal rate 26.5% on £50,572 property profit equals £13,402, versus personal-side post-abolition £15,229. Annual saving £1,827. Plus pension headroom restored via salary plus employer-contribution route (see our pension-impact page for the mechanics). Plus the 5% SDLT additional-dwellings surcharge on any new acquisitions through the company (£25,000 surcharge on a £500,000 acquisition). Plus ATED on any single dwelling held by the company at £500,000-plus. Plus the s.162 incorporation relief modelling for moving the existing personally-held stock across (see our transferring FHL portfolio to limited company page for the mechanics).

The incorporation decision is materially favourable on this leverage profile but depends on the operator's wider tax position, extraction strategy, and 10-15 year holding horizon. The companion taxation of FHLs in a company page walks the post-incorporation steady state. The decision should be modelled, not assumed.

Cross-references

For the topic-led survey of the post-abolition rules, see our FHL tax rules, abolition and what happens now page. The individual-owner action checklist for the 2025/26 SA100 cycle is on our FHL abolition action checklist page. The pension-impact depth is on our FHL abolition pension contributions page. The company-side steady-state architecture is on our taxation of FHLs in a company page. The VAT-side position is on our VAT on furnished holiday lettings page (FHL abolition did not change the VAT treatment). The incorporation-transfer mechanic is on our transferring FHL portfolio to limited company page. The capital allowances grandfathering treatment is on our FHL capital allowances post-April-2025 page. The SDLT angle on new FHL acquisitions is on our SDLT FHL post-abolition page.

HMRC's commentary on the FHL repeal sits at PIM4160 through PIM4190. The CGT-side anti-forestalling is at CG73505. The capital allowances transitional mechanics are at CA20025. The MTD-ITSA staging schedule is at the gov.uk MTD-ITSA service page; the IHT reforms are tracked on the gov.uk inheritance tax announcements page; the property-income surcharge is referenced in the Autumn Budget 2024 policy paper at gov.uk.

For operators planning around the post-abolition stack, the key practical advice is: file the 2025/26 SA100 carefully (the first cycle on the new rules surfaces unexpected interactions); model the 2026/27 cycle ahead of time including any planned Form 17 reset; reserve the 2026/27 to 2027/28 window for any incorporation or major restructure decision; and revisit the pension and succession-side planning ahead of the 2027 commencement of the surcharge and pensions-in-IHT changes.