Furnished Holiday Lettings have long been one of the more tax-efficient ways to hold property in the UK, but the rules changed significantly from April 2025. If you own a holiday let or are considering buying one, understanding what the new regime means for your tax position is essential before you make any decisions.
Quick Answer: What Changed for Furnished Holiday Lets in April 2025?
The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025. Holiday lets are now taxed in the same way as standard residential rental properties. Landlords can no longer claim capital allowances on furnishings, use FHL profits as relevant earnings for pension contributions, or access the favourable Capital Gains Tax reliefs that previously applied to FHL disposals.
What Was the FHL Regime?
Before April 2025, properties that qualified as Furnished Holiday Lettings were treated differently from ordinary buy-to-let properties for several tax purposes. The key advantages were:
- Capital allowances could be claimed on furniture, equipment, and fixtures
- FHL profits counted as earned income for pension contribution purposes
- Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) was available on disposal, giving a lower CGT rate
- Rollover relief and gift relief were available
- Section 24 (the mortgage interest restriction) did not apply
These advantages made FHLs attractive relative to standard buy-to-let properties, particularly for those with significant furnishing costs or pension contributions.
What Changed from April 2025?
The Chancellor announced in the Spring Budget 2024 that the FHL regime would be abolished from 6 April 2025. The transition rules mean:
- From 6 April 2025, all holiday lets are taxed under standard property income rules
- Capital allowances claims on new expenditure from that date are no longer available
- The mortgage interest restriction (Section 24) now applies, meaning finance costs are restricted to basic rate relief only
- FHL profits no longer count as relevant earnings for pension contribution purposes
- Business Asset Disposal Relief is no longer available on FHL disposals (other than under transitional provisions)
What Does Section 24 Mean for Holiday Let Landlords?
Section 24 restricts the amount of finance costs that landlords can offset against rental income. Under the old FHL regime, mortgage interest and other finance costs were fully deductible. From April 2025, holiday let landlords can only claim a basic rate (20%) tax credit on finance costs rather than a full deduction.
For higher rate taxpayers with significant mortgage debt on their holiday properties, this can substantially increase the tax payable. For example, a higher rate taxpayer with £10,000 of annual mortgage interest who previously deducted this in full now receives only a 20% (£2,000) credit instead. This effectively increases their tax bill by £2,000 per year.
Capital Gains Tax on Holiday Let Disposals
Under the old FHL rules, Business Asset Disposal Relief allowed qualifying sellers to pay CGT at a reduced rate on disposal. From April 2025, holiday lets are treated as residential property for CGT purposes.
CGT rates on residential property disposals are:
- 18% for basic rate taxpayers (from October 2024)
- 24% for higher rate taxpayers (from October 2024)
The annual exempt amount is £3,000 for 2025/26.
In addition, residential property disposals must be reported to HMRC and any CGT paid within 60 days of completion.
What About Existing Unclaimed Capital Allowances?
If you had unrelieved capital allowance pools built up under the FHL regime, transitional provisions allow you to continue claiming relief on those pools until they are exhausted. New expenditure from April 2025 onwards cannot enter a capital allowance pool on a holiday let, but existing balances can continue to be claimed as the pool reduces.
Pension Contributions
One significant change that is easy to miss: FHL profits no longer count as relevant UK earnings for pension contribution purposes. This means the amount you can contribute to a pension and receive full tax relief on may have reduced if your FHL profits were a meaningful part of your earnings.
If you were using high FHL profits to justify large pension contributions, this is worth reviewing with your accountant.
Planning Considerations Going Forward
The abolition of the FHL regime does not mean holiday lets are no longer commercially viable. It does mean the tax calculation has changed and some owners will face higher tax bills than before.
Areas worth reviewing include:
- Ownership structure: For some landlords, holding the property in a limited company may now be more tax-efficient, particularly those with higher rate exposure and significant finance costs
- Pricing and income: Higher tax costs may influence rental pricing decisions
- Pension contributions: Review whether your pension contributions are still fully covered by your relevant earnings
- CGT planning: If you are considering selling, the CGT calculation and 60-day reporting requirement both need careful planning
Frequently Asked Questions
I bought a holiday let specifically to benefit from the FHL regime. Can I claim any protection from the changes?
There are no general transitional protections other than the capital allowances pool carryforward mentioned above. The regime was abolished with effect from 6 April 2025 for all FHL landlords. If you have concerns about the commercial viability of your property following the change, reviewing your costs and structure with an adviser is the best course of action.
Do I still need to meet the old FHL letting conditions?
No. From April 2025, the specific FHL letting conditions (availability, actual letting days, and commercial letting requirements) no longer apply because the FHL category no longer exists. Your property is simply taxed as a rental property.
Can I deduct running costs and repairs from my holiday let income?
Yes. Allowable expenses for a rental property still apply: letting agent fees, insurance, repairs and maintenance, advertising, utility costs where you pay them, and accountancy fees. Capital expenditure (improvements rather than repairs) cannot be deducted against income but may form part of the property’s base cost for CGT purposes.
I have a mixture of FHL and standard buy-to-let properties. How do I calculate the mortgage interest restriction?
All your property income is now pooled together under the single property business rules. The Section 24 restriction applies to all your finance costs across the portfolio. Your accountant will calculate this as part of your tax return.
If I sell my holiday let now, do I get Business Asset Disposal Relief?
No, not for disposals on or after 6 April 2025. The relief was only available while the FHL regime was in place. CGT is now payable at the standard residential property rates of 18% or 24%.
Holiday Let Tax Is More Complex Than It Used to Be
The abolition of the FHL regime has made holiday let taxation more complicated in several respects, and the impact varies significantly depending on your individual circumstances. If you have not yet reviewed your position since April 2025, now is the right time to do so.
Our principal tax adviser is ACCA qualified, ATT qualified, and an HMRC Registered Tax Agent with over 25 years of experience in personal and landlord tax. We advise holiday let owners and buy-to-let landlords across Gravesend, Dartford, Medway, Maidstone, Tonbridge, and Sevenoaks on tax-efficient property ownership. Contact us today for clear and practical advice.
Also see: Landlord Tax Return in Gravesend | Capital Gains Tax in Gravesend | Landlord Tax Return in Maidstone
