Furnished holiday lettings regime abolished: what property owners need to know

The furnished holiday lettings regime has been abolished, which means holiday let owners now need to review how their property income, expenses and tax position are reported.

From 6 April 2025 for individuals, trustees and partnerships, and from 1 April 2025 for companies, properties that previously qualified as furnished holiday lettings no longer receive the same separate tax treatment.

If you own a holiday cottage, short-term rental, Airbnb-style property, serviced accommodation or similar let, this change could affect your income tax, mortgage interest relief, capital allowances, capital gains tax planning and pension contributions.

The key point is simple. Your former furnished holiday let is now treated much more like a standard property letting business for tax purposes.

At FHP Accounting’s property tax accountants, we help landlords and property owners understand what these changes mean in practice, not just on paper.

What was the furnished holiday lettings regime?

The furnished holiday lettings regime was a set of special tax rules for qualifying holiday accommodation in the UK and the European Economic Area.

Before the rules changed, a property had to meet specific conditions to qualify. It normally had to be available for short-term letting to the public for at least 210 days in the tax year and actually let for at least 105 days.

The property also could not be used for longer-term occupation of more than 31 days for significant periods, unless certain exceptions applied.

Where the property qualified, owners could access tax advantages that were not usually available to standard residential landlords.

These advantages included:

• Fuller relief for finance costs, including mortgage interest.
• Access to capital allowances on qualifying furniture, equipment and fixtures.
• Potential capital gains tax reliefs linked to trading business assets.
• The ability to treat FHL profits as relevant UK earnings for pension contribution purposes.

These benefits made the regime attractive, particularly for owners with borrowing costs, higher-value furnishings or future plans to sell.

What changed from April 2025?

The main change is that former furnished holiday lets are now brought into the normal UK or overseas property business rules.

This means you no longer calculate FHL income under a separate, more favourable tax regime. Instead, you include the income and expenses as part of your wider property business.

For many owners, this may simplify reporting. However, it can also reduce the tax relief available in certain areas.

If you already use bookkeeping support, this is a good time to check your property income categories, platform fees, repairs, finance costs and private use adjustments are being recorded correctly.

Mortgage interest relief is now restricted for individuals

One of the biggest changes for many owners is the treatment of mortgage interest.

Under the old FHL rules, qualifying owners could usually deduct mortgage interest from rental income when calculating taxable profit.

Now, individual landlords are subject to the same finance cost restriction rules as other residential landlords. Instead of deducting mortgage interest in full from rental profits, relief is generally given as a basic rate income tax credit of 20%.

For example, if you have £10,000 of mortgage interest, the basic rate tax credit would usually be £2,000. If you are a higher-rate or additional-rate taxpayer, this may be less beneficial than the previous treatment.

Companies are not subject to the same individual landlord finance cost restriction rules, but company owners should still review their overall tax position.

If you own more than 1 rental property, a landlord accountant can help you understand the combined effect across your portfolio.

Capital allowances are no longer available in the same way

Another major change is the removal of the more generous capital allowances treatment for new expenditure.

Previously, FHL owners could claim capital allowances on certain qualifying furniture, equipment and fixtures. This was one reason the regime was often seen as more business-like than standard residential letting.

After the abolition, new spending must be reviewed under the normal property business rules.

In many cases, replacement of domestic items relief may apply instead. This can be useful when you replace items such as beds, sofas, white goods or furniture, but it is not the same as the old capital allowances position.

If your former FHL business already had an existing capital allowances pool, transitional rules may allow writing-down allowances to continue on that pool. However, new expenditure after the change needs to be treated carefully.

This is where accurate Xero bookkeeping can make life much easier, because furniture, repairs, replacements and improvements should not all be treated in the same way.

Capital gains tax reliefs are more limited

The abolition also affects capital gains tax planning.

Under the old regime, FHL owners could potentially access certain reliefs connected with trading business assets. These included business asset disposal relief, roll-over relief and gift relief, where the qualifying conditions were met.

These reliefs are no longer generally available for former FHL properties after the regime’s abolition.

This matters if you are thinking about selling, transferring or restructuring a holiday let. The tax difference can be significant, especially where property values have risen over several years.

For example, if a property has increased in value by £100,000, the availability or loss of relief can affect how much tax is payable.

There are transitional rules in some cases, including where a business genuinely ceased before the relevant commencement date. However, this is an area where proper advice is important.

If you hold the property through a company, you should also review your position alongside your company tax returns and wider corporation tax planning.

FHL profits no longer count as relevant UK earnings

Under the old rules, profits from a furnished holiday lettings business could count as relevant UK earnings for pension contribution purposes.

That has now changed.

This means your holiday let profits will no longer usually support pension tax relief in the same way. If you have been making pension contributions based partly or fully on FHL profits, you should review your position before making further contributions.

This is particularly important if your FHL income made up a large part of your personal income.

Your personal tax return should reflect the new treatment correctly, especially from the 2025/26 tax year onwards.

Losses will be treated differently

The loss rules have also changed.

Before abolition, losses from an FHL business were generally carried forward against future profits of that same FHL business.

After the change, former FHL properties are included in your UK or overseas property business. This means losses may be available against future profits of the relevant property business, subject to the transitional rules.

This may simplify the reporting for some landlords, especially if you have both long-term rental properties and former holiday lets.

However, you still need to keep clear records, because HMRC may expect you to show how losses arose and how they have been used.

VAT still needs careful attention

The abolition of the FHL tax regime does not automatically remove VAT considerations.

Holiday accommodation is still standard-rated for VAT. This means VAT can still become relevant if your taxable turnover exceeds the VAT registration threshold.

The UK VAT registration threshold is more than £90,000 of taxable turnover. This is measured across a rolling 12-month period, not just your accounting year.

This point matters if you operate several holiday lets, serviced accommodation units or other taxable business activities.

Platform fees, cleaning charges, booking income and agent commissions should also be recorded clearly.

FHP Accounting can help you review your VAT return services position so you are not relying on rough figures at the end of the year.

Joint ownership may need reviewing

If you own a former FHL property jointly, the profit-sharing position may also need attention.

After the abolition, holiday lets are treated in the same way as other property income. In many cases, profits and losses follow the ownership share of the property.

For married couples and civil partners, profits and losses are normally treated as shared equally unless the beneficial ownership is unequal and the correct declaration has been made to HMRC.

This can affect how property income is reported, especially where 1 owner pays tax at a different rate from the other.

If your ownership structure has not been reviewed for some time, now is a sensible point to look at it again.

What should you do now?

If you own a former furnished holiday let, now is the time to review your numbers properly.

You should consider:

• Whether your mortgage interest relief has changed.
• Whether your furniture and equipment claims are still valid.
• Whether your pension contributions need reviewing.
• Whether your future sale plans still make sense from a tax point of view.
• Whether your bookkeeping separates income, platform fees and expenses correctly.
• Whether your VAT position needs checking.
• Whether jointly owned property income is being reported correctly.

If you prepare annual accounts for a property company, make sure your annual statutory accounts reflect the correct treatment from the right date.

If your property activity is becoming harder to manage, you may also benefit from an outsourced finance department approach, especially where you have several properties, agents or income streams.

How FHP Accounting can help

The abolition of the furnished holiday lettings regime does not mean holiday lets are no longer viable. It does mean the numbers need closer attention.

You may still have a profitable short-term rental business, but you need to understand the tax position before making decisions about pricing, borrowing, refurbishment, pension contributions or selling.

At FHP Accounting, we work closely with landlords, property investors and business owners across the UK. We can help you review your former FHL position, update your tax treatment, prepare your records and keep your reporting compliant.

We can also support you with commercial property management accounting, service charge accounting and wider property tax planning.

If you are unsure how the abolition of the furnished holiday lettings regime affects you, speak to FHP Accounting today.

Get in touch with our friendly team and let us help you understand your next steps with clear, practical advice.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.