The Furnished Holiday Lets (FHL) regime has been abolished: what changed in April 2025 and what UK holiday let owners do now

What changed on 6 April 2025

The Furnished Holiday Lettings (FHL) tax regime, which gave short-term holiday let owners a special tax status with generous reliefs, was abolished. From 6 April 2025 for individuals and trusts (and from 1 April 2025 for companies), holiday lets are now taxed the same as any other rental property.

That is a meaningful change for owners. The FHL regime carried four substantial benefits, all of which have now gone:

• Full mortgage interest deduction, replaced by the standard 20% basic-rate tax credit under Section 24
• Capital allowances on furniture and furnishings, replaced by Replacement of Domestic Items Relief
• Business Asset Disposal Relief on sale (giving a reduced 18% CGT rate on the first £1m of gain), now removed entirely for FHL disposals
• Pension contribution scope, FHL profits counted as 'relevant earnings' for pension contribution purposes; now they do not

What stayed the same: holiday let businesses are still legal to operate, planning rules are unchanged at the tax level, and short-term lettings remain commercially attractive in tourist locations. Only the favourable tax wrapper has been removed.

Loss of full mortgage interest relief: the biggest single hit

Until 5 April 2025, FHL owners could deduct mortgage interest as a normal business expense. Standard buy-to-let landlords have not been able to do this since the Section 24 phase-in ended in April 2020.

From 6 April 2025, FHL owners are caught by Section 24 in the same way. Mortgage interest no longer reduces taxable rental profit; instead, you get a 20% basic-rate tax credit on the finance costs.

For higher-rate taxpayers this hits hard. A worked example:

FHL with £25,000 gross income, £14,000 mortgage interest, £3,000 other costs

Before 6 April 2025 (under FHL regime, higher-rate taxpayer):

• Taxable profit: £25,000 − £14,000 − £3,000 = £8,000
• Tax at 40%: £3,200
• Net cash: £8,000 − £3,200 = £4,800

From 6 April 2025 (post-abolition, higher-rate taxpayer):

• Taxable profit: £25,000 − £3,000 = £22,000 (mortgage interest excluded)
• Tax at 40%: £8,800
• Less: 20% credit on £14,000 interest = £2,800
• Net tax: £6,000
• Net cash: £8,000 − £6,000 = £2,000

So the same FHL property that left £4,800 of cash in 2024/25 leaves only £2,000 in 2025/26. The structural mechanics are identical to those affecting buy-to-let landlords since 2017, which we cover in our Section 24 guide.

Capital allowances: what you keep, what you lose

The rules split into two categories:

Existing pool, brought forward

If you had unused capital allowances in your FHL business before 6 April 2025, the pool carries forward. You continue claiming Writing Down Allowances at the standard rates:

• Main pool: 18% reducing balance
• Special rate pool: 6% reducing balance

So a £10,000 main pool brought forward gives £1,800 of allowance in 2025/26, £1,476 in 2026/27, and so on until the pool is exhausted.

New spend from 6 April 2025

No more capital allowances. The replacement route is Replacement of Domestic Items Relief, which works differently:

• Only the cost of replacing furniture, furnishings, and appliances qualifies
• The initial purchase of items in a new property is NOT deductible
• The replacement must be 'substantially similar' to the original (a £400 bed replaced with a £600 bed is fine; a £400 bed replaced with a £4,000 luxury bed is restricted)
• The disposal value of the old item is netted off

The practical effect: an FHL owner refurbishing the property from scratch can no longer write off £20,000 of new fittings against profit. They have to wait for the natural replacement cycle to start claiming.

BADR is gone for FHL disposals

Business Asset Disposal Relief used to apply to the sale of a qualifying FHL business, capping Capital Gains Tax on the first £1m of gain at 10% (now 18% for 2026/27 sales). From 6 April 2025, BADR no longer applies to FHL disposals at all. Gains are taxed at the standard CGT rates:

• 18% if you are a basic-rate income taxpayer
• 24% if you are a higher / additional rate income taxpayer

A higher-rate FHL owner selling a property with a £200,000 gain previously paid £20,000 in CGT (10% old BADR). Now they pay £48,000 (24% standard rate). That £28,000 difference is the headline number for sellers.

The anti-forestalling rule, who gets caught

When the abolition was announced (Spring Budget 2024), the government anticipated that owners would rush to sign sale contracts before April 2025 to bank the old BADR. The anti-forestalling rule stops that.

The rule: where a contract was made on or after 6 March 2024 and the disposal completes on or after 6 April 2025, BADR, rollover relief, and gift hold-over relief are denied unless specific conditions are met. The denial is the default; relief is only available if the claim includes a statement confirming the claim is not for forestalling purposes (and the conditions in the legislation are genuinely met).

If you signed a contract before 6 March 2024 but completed after 5 April 2025, you can still claim. If you signed on or after 6 March 2024 and completed before 6 April 2025, you can still claim. The gap caught by anti-forestalling is the narrow window of contract-signed-March-2024-to-April-2025- but-completed-after-5-April-2025.

FHL losses: how they're treated now

Pre-abolition, FHL losses were ring-fenced and could only be carried forward against future FHL profit from the same business. Now, FHL losses are pooled with the owner's general UK property losses:

• FHL losses brought forward from 2024/25 and earlier merge into the general property loss carry-forward pool from 6 April 2025
• They can be used against any future UK property profit (FHL or standard buy-to-let)
• This is actually slightly more flexible than the old ring-fence

One small win in an otherwise loss-heavy abolition.

Three options for FHL owners now

1. Carry on as a personal landlord

Accept the Section 24 hit, the loss of capital allowances, and the loss of BADR. Most appropriate for owners with low mortgage gearing, no immediate sale plans, and modest higher-rate exposure.

2. Incorporate into a limited company

Companies retain the full mortgage interest deduction (Section 24 does not apply at the corporation tax line). For higher-rate-taxed owners with significant mortgage interest, the company route can recover most of the post-abolition tax impact. Trade-offs:

• CGT on transferring existing properties (potentially deferred via incorporation relief)
• SDLT at additional dwellings rates (5%) on the company side
• Annual filings, corporation tax returns, dividend extraction tax
• Higher BTL mortgage rates for limited company products

We model this in detail in our Section 24 guide; the FHL transition often makes incorporation materially more attractive than it was pre-abolition.

3. Sell now (or hold for longer)

For owners considering an exit, the maths has shifted. BADR is gone, so the CGT bill on a sale is higher. Two questions to model:

• Does the post-abolition rental yield still meet your investment threshold? If not, sell at the higher CGT bill rather than continue to lose to Section 24.
• Are you close enough to the £1.5m+ retirement-asset threshold that Inheritance Tax planning matters more than incremental CGT optimisation?

Practical 2026/27 housekeeping for FHL owners

• Update your bookkeeping software. FHL income should now sit in your general property income bucket, not a separate FHL category. MTD ITSA quarterly submissions treat it the same as any rental income.
• Check your capital allowances pool. If you had ongoing claims from pre-April-2025 spend, make sure your accountant continues claiming WDA. The pool does not disappear, it just stops accepting new entries.
• Re-examine your pension contributions. FHL profits no longer count as relevant earnings. If you were relying on FHL income to fund larger personal pension contributions, you may need to reduce them or fund differently.
• Review jointly-let FHL splits. The old FHL rules allowed jointly-let property income to be allocated by reference to actual time spent / capital invested. From April 2025, joint property income defaults to the standard 50:50 split for married couples and civil partners (unless Form 17 is filed).
• Reconsider VAT. FHL income generally counted toward the VAT threshold. That is unchanged. If you were close to £90,000 of qualifying turnover, the position is the same; if you are well below, no impact.