Furnished Holiday Let Tax Changes: What FHL Abolition Means for Owners

The furnished holiday let regime — a set of tax reliefs that made holiday lets meaningfully more attractive to own than a standard rental property — ended on 6 April 2025. Owners are now well into their second tax year under the new rules, and the practical effects are showing up in mortgage interest deductions, capital allowances claims and, increasingly, in the tax bill on sale. Here is what actually changed and what is still worth checking.

What the FHL regime used to give you

Before abolition, a property that met the FHL qualifying tests — available to let commercially for at least 210 days a year and actually let for at least 105 — sat outside the normal property income rules entirely. That status came with four significant advantages over an ordinary rental property:

• Full mortgage interest relief as a business expense, rather than the restricted basic rate credit that applies to standard residential lets under Section 24.
• Capital allowances on furniture, fittings, white goods and equipment, allowing the cost to be written down against profits rather than only relieved when items were replaced.
• Capital Gains Tax reliefs normally reserved for trading businesses — Business Asset Disposal Relief at a 10% rate, rollover relief on reinvestment, and gift hold-over relief.
• Relevant earnings for pension purposes, letting owners make tax-relieved pension contributions based on FHL profits, and flexibility to split income between joint owners in whatever proportion suited them, rather than by strict ownership share.

None of that survived the abolition. From 6 April 2025 for Income Tax (1 April 2025 for Corporation Tax), a furnished holiday let is simply a rental property, taxed under the same rules as a long-term buy-to-let.

The reliefs that disappeared

Mortgage interest is now restricted

For individual and partnership owners, the change most people feel first is on finance costs. Mortgage and loan interest is no longer deductible in arriving at rental profit — it is replaced with a basic rate tax credit, exactly as our piece on Section 24 covers for standard landlords. A higher or additional rate taxpayer with meaningful gearing on a holiday let can end up paying tax on a number well above real economic profit. This restriction does not apply to holiday lets held inside a limited company, where corporation tax rules and full interest deductibility continue to apply — which has sharpened the incorporation question for owners with borrowing.

Capital allowances stop, but existing pools survive

New spending on furniture, kitchens, hot tubs and equipment no longer qualifies for capital allowances. Instead, owners get relief for replacing domestic items — the cost of a like-for-like replacement is deductible, but the cost of an initial purchase or an upgrade is not, mirroring the rules that have always applied to standard rentals. Capital allowances pools built up before 6 April 2025 are not clawed back retrospectively; they continue to be written down in the normal way, but nothing further can be added to them. It is worth checking whether unclaimed allowances from before the cut-off are sitting unused, since there is no further opportunity to add to that pool going forward.

The CGT reliefs are the expensive one

Losing access to Business Asset Disposal Relief is the change with the biggest number attached for owners planning to sell. A gain that would previously have been taxed at 10% up to the lifetime limit is now taxed at standard residential property CGT rates — a difference that can run to tens of thousands of pounds on a single disposal. Rollover relief and gift hold-over relief have gone the same way. There is a narrow anti-forestalling exception: if contracts for a sale were unconditionally exchanged before 6 March 2024 (the date of the Budget announcement) but completion happens later, the old CGT treatment can still apply. Anyone mid-transaction around that date should have this checked specifically rather than assumed.

Pension contributions and income splitting

FHL profits no longer count as relevant earnings for pension contribution purposes, which matters for owners who were using holiday let income to support larger pension contributions. And the flexible income-splitting that FHL status allowed between joint owners — letting a couple allocate profit other than by ownership share — has gone. Property income from jointly owned furnished holiday lets is now subject to the same default 50/50 treatment for married couples and civil partners as any other rental property, unless a valid Form 17 election is in place backed by an actual unequal beneficial ownership split.

What still needs checking, even a year on

The immediate scramble around the April 2025 change has passed, but several things are still worth reviewing properly rather than assuming were dealt with at the time:

• Unused capital allowances pools from pre-April 2025 expenditure — confirm the balance and that it is being claimed correctly against current profits.
• Loss relief treatment — FHL losses could only be set against FHL profits; former FHL losses brought forward are now treated as ordinary property losses, which changes what they can be set against going forward.
• Form 17 elections for jointly owned properties where income splitting used to rely on FHL status rather than a formal election.
• Whether incorporation now makes sense for a portfolio that is geared and was previously kept unincorporated because full interest relief made personal ownership more efficient — see our note on buying property through a limited company.
• Timing of any sale — with Business Asset Disposal Relief gone outside the narrow transitional cases, there is no longer a CGT-driven reason to rush a disposal that would otherwise wait for better market conditions.

None of this is reversible after the event in the way some property tax planning is. A missed Form 17 election or an unclaimed capital allowances balance from the transition year is the kind of thing that is straightforward to fix now and considerably harder to unpick two or three tax returns later.

Common questions

When did the furnished holiday let tax regime end?

The FHL regime ended for Income Tax purposes on 6 April 2025 and for Corporation Tax purposes on 1 April 2025. From those dates, furnished holiday lets are taxed as ordinary property income alongside the rest of a landlord's portfolio, regardless of how many nights they were let or how they were marketed.

Can I still deduct mortgage interest in full on a former FHL?

No. Individual and partnership owners now face the same mortgage interest restriction as any other residential landlord under Section 24: interest and finance costs are disallowed as a deduction and replaced with a basic rate tax credit, which can push higher and additional rate taxpayers into paying tax on turnover rather than real profit. Furnished holiday lets held in a limited company are unaffected, since Section 24 only applies to individuals.

What happened to capital allowances on furnished holiday lets?

New expenditure on furniture, fittings and equipment no longer qualifies for capital allowances; owners instead get relief for replacing domestic items, the same regime that applies to standard residential lets. Existing capital allowances pools built up before 6 April 2025 are not clawed back and can continue to be written down, but no further additions can be made to them.

Have Capital Gains Tax reliefs on furnished holiday lets been withdrawn?

Yes, for disposals from 6 April 2025. Business Asset Disposal Relief, rollover relief and gift hold-over relief are no longer available on furnished holiday lets, other than under a specific anti-forestalling rule for contracts that were unconditional before 6 March 2024 and complete later. Losing Business Asset Disposal Relief alone can add a significant amount to the tax on sale, since gains that would have been taxed at 10% now attract standard residential property CGT rates.

Can furnished holiday let owners still split income flexibly between spouses?

Not automatically. FHL income could previously be split in whatever proportion the owners chose, regardless of the underlying ownership share. Jointly owned property is now taxed 50/50 by default for married couples and civil partners unless a valid Form 17 election, backed by an unequal beneficial ownership split, is in place — the same rule that has always applied to standard rental property.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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