Last updated: 14 October 2026
What happened to the furnished holiday lettings rules?
The furnished holiday lettings (FHL) regime was abolished from 6 April 2025 for income tax and capital gains tax (1 April 2025 for corporation tax). Holiday lets are now taxed in the same way as other residential lettings. Owners lost full mortgage interest relief, capital allowances on new furniture and equipment, Business Asset Disposal Relief, rollover relief and the ability to treat profits as relevant earnings for pension contributions. The change was announced in the March 2024 Budget and confirmed in Finance Act 2025.
Before and after April 2025
| Feature | FHL rules (to April 2025) | From April 2025 |
| Mortgage interest | Fully deductible | 20% tax credit only |
| Capital allowances on furniture | Yes | No; replacement of domestic items relief only |
| Existing capital allowance pools | n/a | Can continue to be written down |
| Profits as pension earnings | Yes | No |
| BADR on sale | Possible (10% then) | No; normal CGT rates 18% or 24% |
| Rollover and gift relief | Available | Not available |
| Profit splitting for couples | Could choose split | Follows ownership (or form 17) |
| Losses | Ring-fenced FHL losses | Merged with UK property business |
Anti-forestalling rules
To stop people locking in reliefs, unconditional contracts entered after 6 March 2024 but completed after April 2025 couldn’t use BADR under the old rules. Disposals before 6 April 2025 could still claim it if conditions were met.
Example
Claire lets a Cornish holiday cottage with £25,000 of rent, £6,000 of running costs and £8,000 of mortgage interest. Under the FHL rules, her profit was £11,000. From 2025/26, her profit for tax is £19,000, with a 20% credit for the interest, £1,600. As a 40% taxpayer, her tax rises from £4,400 to £6,000. From April 2027, property income tax rates rise to 22%, 42% and 47%, increasing it further.
What still applies
- Holiday lets still count for business rates in England if available 140 days and let 70 days
- VAT applies to short-term holiday lets if over the £90,000 threshold
- Existing capital allowance pools can still be claimed
- Council tax premiums may apply if not a business-rated property
What owners should do
- Review mortgage finance costs
- Consider ownership splits with a spouse
- Plan disposals using annual exemptions
- Check MTD obligations from April 2026
Common mistakes
- Still claiming capital allowances on new purchases
- Deducting mortgage interest in full
- Claiming pension contributions based on holiday let profits
- Assuming BADR applies on a sale
Records to keep
Keep booking records, availability calendars and capital allowance pool calculations. You still need occupancy records for business rates.
Holiday lets held in a company
Companies with holiday lets lost the FHL rules from 1 April 2025 too, but they still deduct finance costs in full, as all company landlords do. For owners with large mortgages, that makes company ownership relatively more attractive than before, although moving a property into a company triggers CGT and SDLT.
Frequently asked questions
Do holiday lets still pay business rates?
Yes, if they meet the occupancy tests.
Can I still claim replacement furniture?
Yes, under replacement of domestic items relief.
Is Wales different?
Wales has stricter occupancy tests for business rates.
Are holiday let losses usable?
Against UK property profits.
Related: farm and holiday lets, rolling over a property gain and sharing rental income with a partner.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with holiday let tax. See our landlord accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
