Important update: The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025 (1 April 2025 for Corporation Tax) under the Finance Act 2025. The tax advantages described in older guides — full mortgage interest relief, capital allowances, and CGT business reliefs — no longer apply. This guide explains what has changed and what holiday let landlords need to do now.

What Was the FHL Tax Regime?

Until April 2025, furnished holiday lets that met strict HMRC criteria were treated as a trade rather than a property investment. This classification gave FHL landlords access to tax benefits unavailable to standard buy-to-let investors, including full mortgage interest deduction (bypassing Section 24), capital allowances on furniture and equipment, Business Asset Disposal Relief at 10% CGT, rollover relief, and pension contribution relief based on FHL profits.

To qualify, properties needed to be available for commercial letting for at least 210 days per year, actually let for at least 105 days, and not occupied by the same tenant for more than 31 consecutive days in any 7-month period.

What Changed from April 2025

The Finance Act 2025 removed all four key FHL advantages:

  • Mortgage interest: Now restricted to a 20% basic-rate tax credit under Section 24, the same as standard buy-to-let properties. Higher and additional-rate taxpayers lose significant relief.
  • Capital allowances: No new qualifying expenditure can be claimed. Only Replacement Domestic Items Relief remains available for like-for-like replacements of furniture and appliances.
  • CGT business reliefs: Business Asset Disposal Relief (10% rate), rollover relief, and gift relief no longer apply to holiday let disposals. Standard residential property CGT rates of 18% and 24% now apply.
  • Pension contributions: Holiday let income no longer counts as "relevant UK earnings" for pension contribution purposes.

Transitional Provisions

Landlords with existing FHL capital allowance pools can continue to write them down under the standard rules. However, no new expenditure qualifies for capital allowances from April 2025 onwards. Any losses carried forward under the old FHL rules can still be set against future income from the same property, but they are now treated as property income losses rather than trading losses.

If you disposed of an FHL property before 6 April 2025 but haven't yet filed your return, the old rules still apply to that disposal. Any CGT business reliefs you were entitled to under the previous regime remain valid for pre-abolition transactions.

Impact on Holiday Let Landlords

Section 24 Now Applies

This is the single biggest change. Higher-rate taxpayers with significant mortgage finance on holiday lets will see a substantial increase in their effective tax rate. For a 40% taxpayer with £30,000 of mortgage interest, the additional annual tax cost is £6,000 (the difference between full deduction at 40% and the 20% basic-rate credit).

CGT on Disposal

Selling a holiday let property now attracts standard residential property CGT rates. The loss of Business Asset Disposal Relief means gains that would have been taxed at 10% are now taxed at 18% (basic rate) or 24% (higher rate). On a £200,000 gain, this represents an additional tax liability of up to £28,000.

Reduced Expense Claims

Without capital allowances, holiday let landlords can only claim Replacement Domestic Items Relief for like-for-like replacement of furnishings. The Annual Investment Allowance no longer applies, removing the ability to claim immediate tax relief on furniture and equipment purchases.

Allowable Expenses for Holiday Lets (Post-April 2025)

You can deduct the following costs from your rental income to calculate your taxable profit, just as with a standard buy-to-let property:

  • Finance costs: Mortgage interest (subject to Section 24 tax credit), loan interest for property improvements, and mortgage arrangement fees.
  • Property running costs: Council Tax, utility bills (gas, electricity, water), buildings and contents insurance, ground rent, and service charges.
  • Maintenance and repairs: General repairs (e.g., fixing a boiler, repainting), but not improvements that add value.
  • Service fees: Letting agent fees, cleaning costs between guests, gardening, and laundry services.
  • Administrative costs: Accountancy fees, legal fees for lettings, phone calls, stationery, and advertising.
  • Replacement of domestic items: Beds, sofas, white goods, and other furnishings on a like-for-like basis (Replacement Domestic Items Relief).

Expenses You Cannot Claim

  • Capital allowances on new items: You cannot claim capital allowances on new furniture, appliances, or equipment purchased after April 2025.
  • Personal use: Any costs related to periods you or your family use the property personally.
  • Capital improvements: Costs that improve the property beyond its original state (e.g., an extension, a new kitchen where one existed before). These may be deductible for Capital Gains Tax purposes when you sell.
  • Your own labour: You cannot charge for your own time spent cleaning or maintaining the property.

For a comprehensive list, see our guide on Landlord Tax Deductions.

What Should Former FHL Landlords Do Now?

The abolition fundamentally changes the economics of holiday letting. Consider the following steps:

  • Review your tax position: Calculate your new effective tax rate under Section 24 to understand the real impact on your cash flow.
  • Consider incorporation: Limited companies are not affected by Section 24 and can still deduct mortgage interest in full against rental profits. If you're a higher-rate taxpayer with substantial mortgage finance, incorporation may now be more attractive than when FHL status provided an exemption.
  • Reassess your portfolio: Some holiday lets may no longer be financially viable once the full tax impact is factored in. Consider whether converting to standard assured shorthold tenancies would improve your after-tax position. For tax implications of different property types, see our guide on HMO and Multi-Tenant Property Tax.
  • Update your record keeping: With Making Tax Digital requiring quarterly digital reporting from April 2026, ensure your bookkeeping systems are up to date.

The abolition of the FHL regime represents one of the most significant changes to property taxation in recent years. If you operated holiday lets under the old rules, professional guidance is essential to navigate the transition and minimise your tax liability going forward.

Stamp Duty Land Tax (SDLT) on Holiday Lets

Stamp Duty Land Tax (SDLT) rules for holiday lets have not changed with the abolition of the FHL income and capital gains tax regime. The SDLT treatment remains distinct from standard residential purchases.

How SDLT Applies to Holiday Let Purchases

When you purchase a property in England or Northern Ireland that is intended to be used as a furnished holiday let, you must pay the 3% SDLT surcharge on top of the standard residential rates. This is because HMRC considers a holiday let a "second home" or "buy-to-let" property for SDLT purposes, regardless of its former FHL status for other taxes.

For example, purchasing a £400,000 holiday let in England would incur SDLT as follows:

  • Standard residential SDLT on £400,000: £10,000
  • Plus the 3% surcharge on the full purchase price: £12,000
  • Total SDLT due: £22,000

There is no specific SDLT relief or exemption for furnished holiday lets. The surcharge applies even if you do not own any other property, provided the holiday let is not replacing your main residence. For detailed calculations, use our Stamp Duty Buy-to-Let Surcharge guide.