HMRC has abolished the Furnished Holiday Lettings (FHL) tax regime from April 2025. This means that holiday lets will no longer have special tax advantages and will instead be treated the same as standard residential rental properties from tax returns starting with the tax year 25/26.

What is an FHL?

In short, a furnished holiday let is a furnished holiday let (FHL) is a property that is furnished and commercially let in either the UK or European Economic Area (EEA). To be considered a FHL, the following conditions have to be met.

Was your property considered FHL?

To be considered an FHL, properties had to meet these criteria:

• Location – the property had to be in the UK or the European Economic Area (EEA).
• Furnished – it had to be adequately furnished for visitors to use. This meant having all the furniture and amenities you would expect in a self-catering holiday home, such as beds, sofas, kitchen equipment, etc.
• Commercial Letting – the property had to be let out on a commercial basis, with the intention of making a profit. This excluded things like letting to friends or family for free or at a reduced rate.

In addition to these, there were three crucial occupancy tests that the property had to meet each year, these can be found here.

What does this mean?

Here is a summary of the key changes and how they will affect individuals:

1. Loss of specific tax benefits

• Mortgage interest – previously, FHL owners could deduct their full mortgage interest from their rental income before calculating tax. From April 2025, this is no longer the case. Instead, relief on mortgage interest will be limited to a 20% tax credit, the same as for other residential landlords. This will significantly increase the tax bill for higher and additional-rate taxpayers.
• Capital allowances – FHL owners could previously claim Capital Allowances on items like furniture, fixtures, and equipment to reduce their taxable profits. This benefit has been removed. Going forward, you will only be able to claim “Replacement of Domestic Items Relief,” which allows you to claim a deduction for the cost of replacing certain items, but not for the initial purchase.
• Capital Gains Tax (CGT) – when selling an FHL, owners could access specific CGT reliefs typically available to businesses, such as:
  1. Business Asset Disposal Relief (BADR) – this allowed a lower CGT rate of 14% (Increasing to 18% as of April 2026) on the first £1 million of lifetime gains. This relief will no longer be available.
  2. Rollover relief – this allowed owners to defer a gain on an FHL sale by reinvesting the proceeds into another qualifying business asset. This is also no longer an option.

2. Changes to profit and loss calculations

• Treatment of profits and losses – FHLs will now be part of your main UK property business for tax purposes. This means that if you have other rental properties, you will combine all profits and losses from them, simplifying your tax reporting. Previously, FHL losses were ring-fenced and could only be offset against future FHL profits. Now, these losses can be used against profits from your other UK property lettings.
• Profits and pension contributions – FHL profits used to be considered “relevant earnings” for pension contributions, which was beneficial for those with limited other income. This is no longer the case, which may affect the amount of tax relief individuals can claim on their pension contributions.

3. Impact on jointly owned properties

• For married couples or civil partners who jointly own a property, the default tax position for rental income is a 50:50 split. The FHL regime provided an exception to this. From April 2025, this exception was abolished.
• If you own the property in unequal shares and want the income split to reflect this, you will need to submit a specific form (Form 17) to HMRC. This form must be submitted within 60 days of the declaration of unequal shares.

Good News

As stated before, the changes above only come into effect after the 5th April 2025. This means for changes in areas like capital allowances, anything claimed before this date can be kept.

These changes can result in quite substantial changes to your tax returns and will affect everyone differently. Should you require more information or would like us to assess how you might be affected, please get in touch.