The furnished holiday lettings (FHL) tax regime has been abolished. The change took effect on or after 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax and corporation tax on chargeable gains. Your holiday let is now taxed like any other rental property. For most owners the cost shows up in four places: mortgage interest relief, capital allowances, capital gains tax on a sale, and pension relief. It applies to properties in England, Northern Ireland, Scotland and Wales.
This guide is written from the current position, as at October 2026. Some of the advice published around the abolition told owners to act before April 2025. That window has closed, so this article concentrates on what you can still do.
The dates that matter
| What | When |
|---|---|
| Abolition, income tax and capital gains tax | On or after 6 April 2025 |
| Abolition, corporation tax and corporation tax on chargeable gains | From 1 April 2025 |
| Anti-forestalling rule against using unconditional contracts to get old FHL capital gains reliefs | Applies from 6 March 2024 |
| 2025/26 tax return, the first filed entirely under the new rules | Due 31 January 2027 |
| Capital gains tax on a UK property sale: report and pay | Within 60 days of completion |
The first two dates and the anti-forestalling date come from HMRC's published tax information note on the abolition. Protax gives the 31 January 2027 return date.
What the FHL regime was, and why it went
To qualify as a furnished holiday let, a property had to be available for short-term letting to the public for 210 days and actually let for 105 days or more in each tax year, without long lets of over 31 days for significant periods. The special treatment dated from 1984.
HMRC's stated aim is fairness: aligning the tax rules with other property businesses and removing the advantages FHL landlords had over other residential landlords. The tax note names four areas of advantage: finance costs, capital allowances, capital gains tax reliefs for trading assets, and pension relevant earnings. Spring Budget 2024 announced the measure, and the Labour government continued the policy after taking office.
After the abolition, former FHL properties form part of the person's UK or overseas property business and follow the same rules as non-holiday-let property businesses. Income and gains are no longer reported separately. On your self assessment return, the FHL and UK property sections combine into one for 2025/26, on the UK property pages.
Income tax: mortgage interest is now the big one
Before the change, FHLs were exempt from the finance cost restriction (often called Section 24), so you could deduct loan interest from your rental profit in full. Now the restriction applies. HMRC's note says loan interest is restricted to the basic rate of income tax. Instead of deducting the interest, you take a 20% tax credit. BDO points out that for higher and additional rate taxpayers this cuts the relief from 40% and 45%.
Here is an example from Protax. Rental income is £18,000 and mortgage interest is £8,000.
| Old FHL rules | Now | |
|---|---|---|
| Taxable profit | £10,000 (£18,000 less £8,000 interest) | £18,000 |
| Tax at 40% | £4,000 | £7,200 |
| Less 20% credit on £8,000 interest | none | £1,600 |
| Tax payable | £4,000 | £5,600 |
The owner pays £1,600 more a year, and the interest is the same. The restriction does not affect someone with no finance costs.
The restriction can also push a basic rate taxpayer into a higher band, because tax is worked out on profit before interest. Sykes Cottages gives an example. John has £30,000 of PAYE income and £20,000 of net holiday let profit after £10,000 of interest. Without the interest deduction his income rises to £60,000, which puts part of it in the 40% band. He still gets a £2,000 credit, but pays an extra £1,946 in income tax a year. Our guide to mortgage interest relief for landlords explains how the credit is worked out.
Companies are different
The restriction does not apply to a limited company. Sykes Cottages says properties owned by limited companies are unaffected and can still claim full interest deductions. A company pays corporation tax, not income tax. That is one reason incorporation comes up in every conversation about this change, and it is not a simple fix (see below).
Everyday costs are unchanged
Cleaning, maintenance and welcome packs remain deductible, as Sykes Cottages notes. Protax lists letting agent fees, cleaning, insurance, utilities during void periods, repairs and professional fees as still allowable. If your trade was running properly, your day-to-day expense claims should look the same as before.
Capital allowances
The capital allowances rules for new expenditure on furnishings and equipment are gone, replaced by replacement of domestic items relief. That relief covers the like-for-like replacement of domestic items in a residential property. Sykes Cottages lists moveable furniture, furnishings, household appliances and kitchenware as domestic items. It does not cover furnishing a property for the first time.
If you already had a pool of capital allowances, HMRC's note says you can continue to claim writing-down allowances on that pool. A writing-down allowance is the annual allowance on the remaining balance of a pool of plant and machinery. New expenditure on or after the start date falls under the property business rules. IBISS says pool balances do not give rise to a balancing allowance or charge purely because of the regime change. Protax says the pool does not disappear, it simply stops receiving new additions.
So the practical step now is to confirm the pool balance at 5 April 2025 and the writing-down allowance available for 2025/26, as IBISS suggests.
Losses
HMRC's note says that losses from your FHL business can be carried forward and set against future profits of your UK or overseas property business, as appropriate. Previously they could only be used against the FHL business itself. Gather your brought-forward FHL losses and record whether they are UK or overseas, because they follow that distinction.
Joint ownership: the default is now 50:50
This is the part of the change that surprises couples. The old regime allowed married or civil-partner owners to split the profits flexibly. That exception has gone. Tax Adviser magazine says that without action, most married or civil-partner joint owners are now subject to the usual rules for joint property, which means a default 50:50 split of profit.
If your beneficial ownership is unequal, you can depart from 50:50 by making a joint declaration on Form 17, with evidence of the unequal interests such as a deed of trust. Some points from the Tax Adviser article:
- The split must match the underlying beneficial interests. You cannot allocate profits based on the effort each owner puts in.
- The declaration is made for each property separately and, once made, is permanent.
- It takes effect from the date of signing and cannot be backdated.
- Where spouses hold as joint tenants, you cannot make the declaration unless the tenancy is severed first.
- Changing who owns what may trigger stamp duty land tax (or LBTT or LTT in Scotland and Wales) where there is a mortgage.
BDO and UK Landlord Tax say HMRC must receive Form 17 within 60 days of the date it was signed. For forms signed on 6 April 2025, that deadline was 6 May 2025. If you missed it, you need to sign a fresh form, and it only applies from the new signing date. The extra tax already paid at 50:50 will not come back.
Pensions
FHL profits no longer count as relevant UK earnings when working out your maximum pension relief. Relief on contributions is limited to the higher of £3,600 or 100% of net relevant earnings. BDO adds that the profits also stop counting for Class 2 and voluntary Class 3 National Insurance purposes.
If your holiday let was your main source of earned income, your relievable pension contributions may now be capped at £3,600 a year, as Protax says, unless you have other qualifying earned income. Reassess how much you can contribute before making a large payment.
Capital gains tax on a sale
HMRC's note says that rollover relief, Business Asset Disposal Relief (BADR), gift relief, relief for loans to traders and the substantial shareholdings exemption for companies cease for FHLs. BDO calls the cut-off a hard deadline with no transitional rules, however long you have run the FHL as a business. Where a relief depends on conditions in a later year, the FHL conditions you satisfied before repeal are not disturbed. BADR can still apply to a disposal within the normal three-year period after a business ceased before the start date.
Residential property gains are taxed at 18% for basic rate taxpayers and 24% for higher rate taxpayers. The higher rate was cut from 28% to 24%.
BDO's example for what this means: on a £200,000 gain at 24%, the tax is £48,000, before any annual exemption. Under the old rules, BADR could cut that substantially, and Sykes Cottages notes that BADR rates themselves have risen to 14% from 6 April 2025 and 18% from 6 April 2026. Either way, the relief is not available to a holiday let sale now.
Rollover relief used to defer the gain where the proceeds were reinvested, within three years after the sale or one year before. That route is closed.
Straddling contracts and gifts
The anti-forestalling rule, which applies from 6 March 2024, stops the use of unconditional contracts to obtain capital gains tax relief under the old FHL rules. BDO reads it as denying rollover and holdover claims for transfers between connected persons where contracts were exchanged from 6 March 2024 and completion fell after the cut-off. Third-party sales for wholly commercial reasons appear to be exempt but need disclosure. IBISS advises documenting the commercial reason for any sale that straddled the date. If that applies to you, get advice on your facts.
Giving a holiday let to a connected relative is a disposal at market value, according to BDO, and there may be inheritance tax consequences, especially if you keep using the property rent-free.
UK property gains must be reported and the tax paid within 60 days of completion. We cover the process in capital gains tax when you sell a rental property.
VAT does not change
Saffery confirms that the abolition does not change VAT. Holiday income remains subject to VAT and counts towards the VAT registration threshold. A change of use to longer-term letting could change the VAT position.
Practical steps now
- Recalculate your net rental income after the finance cost restriction. Work out the extra tax for 2025/26 and set it aside before 31 January 2027.
- Reconcile your capital allowance pool at 5 April 2025 and confirm the allowance for the current year.
- List your brought-forward FHL losses, split between UK and overseas.
- Check how you split joint income. If your ownership is unequal, take advice on a Form 17 and on the stamp duty position before signing anything.
- Reassess your pension capacity if the holiday let supplied your earned income.
- Update your bookkeeping. Saffery advises reassessing how former FHL accommodation is classified in the accounts (investment property or property, plant and equipment). It also suggests removing FHL-specific tax settings such as capital allowances from your accounting software, switching on the finance cost restriction and pooling FHL losses with general property losses.
- Check what the platforms report. Protax says income from platforms such as Airbnb is reported to HMRC under the DAC7 rules, so your return should match.
Should you incorporate, sell or carry on?
Protax and IBISS set out the usual options: carry on letting after remodelling your cash flow, consider long-term letting, move a share to your spouse, incorporate, or sell.
Incorporation deserves caution. A company can deduct interest in full, but moving the property into it can trigger capital gains tax and stamp duty land tax, and there is no holdover relief for FHLs now. IBISS says incorporation works well for portfolios above a certain size and poorly for single properties with significant embedded gains. Selling also carries a tax cost, as the capital gains section shows. For many owners with a modest mortgage, carrying on and paying the extra tax is the cheapest answer.
An accountant earns their fee here. The decision turns on your mortgage, your tax band, the size of the gain and your plans for the property. Deplexify's property service page covers our work for landlords and property companies.
Frequently Asked Questions
Are furnished holiday lets still taxed? Yes. They are taxed as part of your UK or overseas property business, on the same rules as other rental properties.
When did the regime end? On or after 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax.
Can I still claim capital allowances? You can keep claiming writing-down allowances on an existing pool. New spending on furnishings falls under replacement of domestic items relief, which covers like-for-like replacements only.
How is mortgage interest treated now? Individuals get a 20% tax credit instead of deducting the interest. Companies can still deduct interest in full.
Do I still pay less capital gains tax if I sell? Not through the old FHL reliefs. Rollover relief, BADR, gift relief and the other reliefs have ceased. Residential gains are taxed at 18% or 24%.
Does the abolition affect VAT? No. VAT treatment is unchanged.
Sources
- Abolition of the furnished holiday lettings tax regime - GOV.UK — gov.uk, read 2026-10-19
- Tax changes for holiday lettings - BDO — bdo.co.uk, read 2026-10-19
- Furnished holiday lettings tax regime abolished from 1 April 2025 | ACCA Global — accaglobal.com, read 2026-10-19
- Furnished holiday lets: the end of an era | Tax Adviser — taxadvisermagazine.com, read 2026-10-19
- 2025 Furnished Holiday Let Tax Changes | Sykes Cottages — sykescottages.co.uk, read 2026-10-19
- FHL Regime Abolished: A Guide for UK Landlords — protax.org.uk, read 2026-10-19
- Furnished Holiday Let Abolition Guide | IBISS & CO — ibissandco.com, read 2026-10-19
- FHLs abolition – what accounting changes do you need to consider? | Saffery — saffery.com, read 2026-10-19
- Holiday Let Tax Changes & CGT Explained – UK Landlord Tax — uklandlordtax.co.uk, read 2026-10-19