Furnished Holiday Lettings (FHLs)
Furnished Holiday Lettings — what changed and what to do next
From 6 April 2025 the special FHL tax regime is gone. Properties that used to qualify now follow the same rules as any other residential let — no capital allowances on furniture, mortgage interest restricted to a 20% basic-rate credit, no Business Asset Disposal Relief on sale, and rental income no longer counts as relevant earnings for pension contributions. We help owners work out what to do next.
What changed in April 2025
The Furnished Holiday Lettings regime was abolished by the March 2024 Budget and confirmed by the October 2024 Budget. The change took effect from 6 April 2025 for individuals (income tax) and 1 April 2025 for companies (corporation tax). All FHL properties — whether qualifying or not — are now treated as ordinary residential property businesses for tax purposes.
- Capital allowances on furniture, white goods and equipment are gone. Use the much narrower Replacement of Domestic Items relief instead.
- Mortgage interest is no longer fully deductible. It is restricted to a 20% basic-rate tax credit, the same as any buy-to-let.
- Business Asset Disposal Relief (BADR) at 14% is gone. Capital gains on sale are taxed at 18% / 24% as residential property.
- Rollover relief and gift hold-over relief on FHL transfers are gone.
- Pension contributions — FHL income no longer counts as “relevant earnings”, so it does not increase the amount you can contribute to a pension.
- Profit splitting between spouses now follows beneficial ownership share, not whatever you elect — same restriction as residential lets.
- Losses from former FHLs are now pooled with your other UK property losses, not ring-fenced to the FHL business.
What is still allowed
The change is to the tax treatment, not to your right to let the property. Holiday lets are still legal. The economics just look different.
- Replacement of Domestic Items relief — you can still deduct the like-for-like cost of replacing sofas, beds, washing machines and similar. The first purchase of an item is no longer deductible (it was, under capital allowances).
- Repairs and maintenance, cleaning, agency fees, council tax, utilities, insurance, mortgage arrangement fees and accountancy are all still allowable expenses.
- Annual exempt amount on capital gains (£3,000 for 2025/26) and the spouse transfer rules still apply.
- Transitional rules protect any unused capital allowances pool — it can be claimed against ongoing rental profits.
- VAT — short-term holiday lets can still register for VAT and reclaim input VAT, particularly useful for high-spec new builds and conversions.
What to do now — three common situations
Keep letting as before
The cashflow case for short-term holiday lets often still works, especially in tourist hotspots and with strong booking patterns. The tax picture is just less generous. We will run the post-2025 numbers so you know exactly what to expect on this year’s return.
Sell — and time it
Capital gains on a former FHL are now taxed at 18% / 24% rather than 14% under BADR. Selling before 5 April 2025 was the planning window for BADR; after that date the rate jumps. We work out your CGT position properly and prepare the 60-day return.
Incorporate the portfolio
If you have several lets, transferring them to a limited company can restore mortgage interest deductibility (in the company) and create a vehicle for income shifting. The catch is SDLT on transfer — usually only worth doing if incorporation relief applies. We model both before you commit.
Frequently asked questions
I bought new furniture in 2024 — can I still claim it?
If it was a first-time purchase eligible for capital allowances under the old FHL regime, the unused pool transfers and is deductible against ongoing rental profits via writing-down allowances. The transitional rules protect the existing pool; only NEW purchases from April 2025 are no longer eligible for full capital allowances.
Can I still split profits with my spouse?
Only in the proportion of beneficial ownership. The old FHL rules let couples elect any split they wanted. Under the new rules, joint owners must declare profits in line with their actual ownership share — typically 50/50 unless you have a formal Form 17 declaration backed by a Declaration of Trust.
What about Business Property Relief for inheritance tax?
FHLs rarely qualified for BPR even before the change because HMRC viewed most as investment rather than trading businesses. Post-April 2025 there is virtually no chance of qualifying. If you are concerned about IHT on holiday lets, that planning needs to come from elsewhere — we can model the position.
Should I incorporate my holiday lets?
Sometimes. If you have several FHLs with significant mortgages, the company structure restores 100% mortgage interest deductibility against company profits. But SDLT on the transfer is usually the killer — typically only worth doing where incorporation relief is available (i.e. the lettings amount to a true property business). We will model the SDLT, the CGT on transfer, the financing implications and the long-term tax position before recommending it.
Does the change affect council tax / business rates?
No — the rules around what counts as a holiday let for business rates are separate (administered by the Valuation Office Agency, with thresholds around 70 days actually let and 140 days available). Most short-term lets in England and Wales still qualify for small business rates relief if they meet those tests.
Selling a former FHL? CGT now applies at residential rates (18% / 24%) — no more BADR. Quickly estimate the bill.
Want this looked at properly?
The first post-abolition tax returns are due now. We can review your portfolio, model the new numbers, and tell you whether to keep letting, sell, restructure, or incorporate.