Furnished Holiday Lets: Tax Rules Explained

Furnished Holiday Lets: Tax Rules Explained

Furnished holiday lets used to enjoy one of the most favourable tax regimes in UK property — better allowances, better CGT treatment and pension advantages that ordinary buy-to-lets couldn't touch. That changed on 6 April 2025, when the special furnished holiday lettings (FHL) tax regime was abolished. If you own a holiday let, here's what the new landscape looks like.

What changed in April 2025?

From 6 April 2025 (1 April 2025 for companies), furnished holiday lets are taxed under the standard UK property income rules, just like any other rental property. The headline losses:

  • Capital allowances gone: FHL owners could previously claim capital allowances on furniture, fixtures and equipment. Now, like other landlords, you get replacement of domestic items relief instead — you can only deduct the cost of replacing (not initially providing) items such as beds, sofas and white goods.
  • Finance cost restriction now applies: mortgage interest on a holiday let is now subject to the same Section 24 restriction as other residential lettings — a 20% basic-rate tax credit rather than a full deduction. Higher-rate taxpayers will notice the difference.
  • CGT reliefs lost: gains on FHLs previously qualified for Business Asset Disposal Relief (the 10% rate, now higher) and could benefit from gift relief and rollover relief. Those are gone — gains are now taxed at standard residential property CGT rates, with the 60-day reporting rule applying on UK residential disposals.
  • Pension disadvantage: FHL profits previously counted as "relevant UK earnings" for pension contribution purposes. They no longer do, which matters if the holiday let was your main source of earned income for pension allowances.

What stays the same?

It's not all bad news. Holiday lets remain a property business, so:

  • Allowable expenses still include letting agent fees, cleaning between guests, advertising, insurance, repairs, utilities during voids and accountancy fees.
  • The £1,000 property allowance is available if your total property income is modest.
  • Losses can still be carried forward against future profits of the same property business.
  • You can still use the cash basis if your rental receipts are within the limit.

The qualifying conditions — do they still matter?

Previously, a property had to meet strict tests to count as an FHL: available for letting at least 210 days a year and actually let for at least 105 days, with no single letting over 31 days dominating. Those thresholds no longer unlock special tax treatment — but they still matter commercially. Lenders, insurers and local authorities may still ask about occupancy, and business rates versus council tax treatment of holiday accommodation remains a separate question worth checking with your council.

Practical steps for holiday-let owners

1. Recalculate your position: model your tax under the new rules — the finance cost restriction alone may change whether the let is still profitable. 2. Review your structure: some owners are reconsidering whether a limited company wrapper makes sense, though incorporation has its own costs and tax consequences (SDLT, CGT on transfer). 3. Check your pension planning: if FHL profits were your relevant earnings, speak to an adviser about alternatives. 4. Keep immaculate records: with reliefs narrower, every allowable expense counts — track cleaning, maintenance and agent fees carefully. 5. Don't miss the 60-day CGT rule: if you sell, report and pay CGT on UK residential property within 60 days of completion.

Should you still invest in holiday lets?

The tax tail no longer wags the dog, which arguably makes the decision healthier: judge a holiday let on its commercial merits — location, occupancy, yield and your appetite for hands-on management. In strong tourist areas, well-run lets still outperform standard buy-to-lets on gross income; the tax changes simply mean you keep less of the margin than before.

Navigating the post-2025 rules — especially the interaction of Section 24, replacement relief and the CGT changes — is exactly where specialist furnished holiday let accountants earn their keep. The regime change caught many owners off guard, and a review now can prevent an unwelcome surprise at the next tax return.

Get your holiday let reviewed

Whether you've owned a coastal cottage for years or are eyeing your first Airbnb-style investment, the new rules deserve a fresh look at your numbers. Cheap Accountants in London supports landlords and property investors with fixed-fee accounting from £79 to £249, fully online, covering Self Assessment, expense reviews and planning under the post-FHL regime. Know where you stand — then decide with confidence.


 


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