Holiday Let Tax After the April 2025 FHL Abolition

What the FHL regime was — and why it mattered

Furnished Holiday Lets (FHLs) had separate, more favourable tax treatment than standard residential lets for over 40 years. To qualify as an FHL, the property had to:

• Be furnished and available for short-term holiday letting (not long-term tenancies)
• Be in the UK or European Economic Area
• Be available for letting for at least 210 days/year
• Be actually let for at least 105 days/year (excluding lets to the same person for more than 31 days)
• Not have lets to the same person for more than 155 days/year

Properties meeting these conditions enjoyed favourable treatment vs standard residential lets:

• Full mortgage interest deductibility (no Section 24 restriction)
• Capital allowances on furniture, fixtures, fittings
• CGT Business Asset Disposal Relief (10% rate on first £1M of gain) on sale
• Holiday let losses could be carried forward and set against future FHL income
• Earnings counted toward pension contribution limits as "relevant UK earnings"

What changes from 6 April 2025

The Spring Budget 2024 announced the abolition of the FHL regime from 6 April 2025. From that date, former FHL properties are taxed under the same rules as standard residential lets:

• Section 24 applies. Mortgage interest is no longer fully deductible — only the 20% basic-rate credit applies, same as standard BTL.
• Capital allowances on existing assets continue on a transitional basis (you can claim ongoing writing-down allowances on assets in pools at 5 April 2025), but no new capital allowances can be claimed on assets purchased from April 2025 onwards.
• Business Asset Disposal Relief is no longer available on sale of former FHL properties (unless the sale completes by 5 April 2025).
• Holiday let losses can no longer be carried forward separately — they merge with the standard property income loss pool.
• FHL income no longer counts as "relevant UK earnings" for personal pension contribution limits.

The changes apply to both UK and EEA-based holiday lets owned by UK taxpayers.

Mortgage interest — the biggest cash-flow hit

The biggest practical change is mortgage interest. Before April 2025, FHL owners deducted 100% of mortgage interest against rental income, paying tax only on the net profit at their marginal rate. From April 2025, only a 20% basic-rate credit applies.

For a higher-rate-taxpayer holiday-let owner with £30,000 rental income and £14,000 mortgage interest:

Pre-April 2025

• Rental income: £30,000
• Less mortgage interest: £14,000
• Less other expenses: £4,000
• Taxable: £12,000
• Tax at 40%: £4,800
• Net cash kept: ~£7,200

Post-April 2025

• Rental income: £30,000
• Less other expenses (excl. mortgage interest): £4,000
• Taxable income: £26,000
• Tax at 40%: £10,400
• Less 20% credit on £14,000 interest: £2,800
• Net tax: £7,600
• Net cash kept: £30,000 − £14,000 mortgage − £4,000 other − £7,600 tax = ~£4,400

£2,800/year worse off for this single property. Multiplied across a portfolio of holiday lets — and given the heavy gearing typical in coastal holiday-let markets — the cumulative impact can be material.

Capital allowances — transitional then lost

FHL owners could claim capital allowances on furniture, white goods, kitchen fittings, sofas, beds, garden furniture, etc. The annual investment allowance (AIA) lets you write off most of these immediately rather than depreciating over years — typically £1,000-£8,000/year of allowances for an active holiday let.

Transitional rules to April 2025:

• Assets already in pools at 5 April 2025 continue to attract writing-down allowances at the standard rates (18% main pool, 6% special rate pool) on a year-by-year basis.
• New purchases from 6 April 2025 are no longer eligible for capital allowances. Replacement-of-domestic-items relief (which covers like-for-like replacement of furniture, appliances, etc.) is the only ongoing relief — same as standard BTL.

For owners planning major refurbishment or furniture upgrades, completing them before 5 April 2025 captures the AIA. After that date, the same spending gets only the replacement-of-domestic-items relief on the lesser amounts (replacements only, not improvements).

CGT reliefs — Business Asset Disposal Relief lost

The biggest single relief that holiday-let owners lose is Business Asset Disposal Relief (BADR), formerly Entrepreneur's Relief. This let FHL owners pay CGT at 10% on the first £1 million of qualifying lifetime gains on disposal of FHL property — vs standard residential CGT rates of 18% (basic rate) or 24% (higher rate).

BADR is no longer available on FHL property disposed of from 6 April 2025 onwards. The standard residential CGT rates apply.

For a holiday-let owner sitting on a £500,000 gain considering sale:

• Sale before 6 April 2025 with BADR: 10% × £500,000 = £50,000 CGT
• Sale from 6 April 2025: 24% × £500,000 = £120,000 CGT
• Cost of delay: £70,000

For owners considering exit, the financial case for completing sale before April 2025 is sometimes very strong. Note: this article was published 14 May 2026, so the deadline has passed. Anyone reading this now is in the post-FHL regime and these reliefs no longer apply.

Pension contributions impact

Personal pension contributions are capped at the higher of £3,600 or 100% of your "relevant UK earnings" (subject to the £60,000 annual allowance). FHL income previously counted as relevant UK earnings — meaning you could make pension contributions up to your FHL income level.

From April 2025, former FHL income no longer counts. Your pension contribution capacity is now limited to your other earned income (salary, employment, partnership profits, self-employment).

For holiday-let owners with no other earnings — retirees, lifestyle business owners — this materially restricts pension contribution capacity. The £3,600 minimum still applies, but the higher cap based on FHL income disappears.

Transition planning for former FHL owners

Now that the FHL regime is abolished (April 2025), owners have several decisions ahead:

1. Continue letting as standard residential. Same Section 24 restrictions as any BTL apply. Holiday-let operating model continues (cleaning, marketing via Airbnb / VRBO / direct booking), but tax treatment is now identical to standard BTL.
2. Switch to long-term residential lets. Often higher net yield once FHL tax advantages are gone, since operating costs are lower. Tenancy rules (AST, deposits, EPC, electrical safety) apply.
3. Incorporate into a Ltd company. Property held in a Ltd company isn't subject to Section 24. The Ltd route may now be more attractive for highly-geared holiday lets too. CGT and SDLT on the transfer apply unless Section 162 incorporation relief is available — see Section 162 explained.
4. Sell. Now subject to standard residential CGT (18% / 24%). For owners considering exit, the case for selling has weakened as BADR is no longer available.
5. Reduce gearing. Pay down mortgage to reduce the Section 24 impact. Less leverage = less interest = less of an impact from the credit-only treatment.

Each case is specific. Talk to a landlord-specialist accountant — GoLandlord matches you with one who's familiar with the post-FHL landscape.