Furnished Holiday Let Tax Rules

The furnished holiday let (FHL) tax regime, which gave short-let landlords a set of tax advantages over standard residential lets, was abolished from 6 April 2025 for Income Tax and Capital Gains Tax (1 April 2025 for Corporation Tax). Properties that used to qualify as FHLs are now taxed as an ordinary UK property business, with the same rules that apply to a standard buy-to-let.

This guide sets out what the old FHL regime offered, exactly what changed, where short lets sit now, and what that means for your record keeping. It is date-stamped to August 2026, over a year after the change took effect, so the position below reflects settled HMRC guidance rather than a proposal still working through Parliament.

What the old FHL regime offered

Before April 2025, a property that met the FHL occupancy conditions (available to let for at least 210 days a year, actually let for at least 105 days, with no single letting exceeding 31 days for more than a set portion of the year) was treated differently from a normal rental property in four main ways:

• Full mortgage interest relief. FHL landlords could deduct 100% of finance costs as a business expense before arriving at taxable profit, rather than being restricted to the 20% tax credit that Section 24 imposes on standard residential lets.
• Capital allowances. FHL owners could claim capital allowances on items like furniture, fixtures and equipment used in the letting business, a more generous treatment than the replacement of domestic items relief available to standard lets.
• Capital gains tax reliefs. Because an FHL business was treated as a trade for certain purposes, owners could potentially access reliefs such as Business Asset Disposal Relief, rollover relief and gift relief on a sale, taxed at more favourable rates than standard property gains.
• Pension relief. FHL profits counted as relevant UK earnings, so they could support pension contributions in a way ordinary rental income does not.

These advantages were specifically why short-let landlords structured their businesses around the FHL conditions, sometimes juggling occupancy days deliberately to stay inside the rules.

What changed

The government abolished the FHL rules through the Finance Act 2025, removing the separate tax treatment entirely rather than adjusting individual reliefs. The effect took hold in tax years starting on or after 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax. From those dates, the four advantages above stopped applying:

• Finance costs on former FHL properties are now restricted in the same way as any other individual-owned residential let, with relief given as a 20% tax credit rather than a full deduction. Our Section 24 explainer covers exactly how that calculation works.
• Capital allowances claims for new expenditure stopped; former FHL owners instead use replacement of domestic items relief, which covers like-for-like replacement of furnishings rather than the original purchase or an upgrade.
• Eligibility for capital gains reliefs tied to trading-business treatment, including Business Asset Disposal Relief, ended for disposals on or after the relevant date, subject to anti-forestalling rules that blocked attempts to lock in the old treatment using contracts entered into just before the change.
• FHL income no longer counts as relevant UK earnings for pension relief purposes.

HMRC's guidance is clear that the abolition does not require you to change how you run the letting business. You can keep operating the property exactly as before, on Airbnb, through a holiday letting agency, or however you previously marketed it. What has changed is purely the tax treatment, not any requirement to convert the property to a longer-term let.

Existing capital allowance pools built up before the change did not disappear; they continue to be written down under the normal capital allowances rules until exhausted, even though no new expenditure can be added to those pools. Losses carried forward from the former FHL business can also be set against profits of the ongoing property business going forward, rather than being lost entirely.

Where short lets sit now

A property that used to qualify as an FHL is, for tax purposes, now simply part of your UK (or overseas) property business, taxed under exactly the same rules as a standard residential let. In practice that means:

• If several properties are held personally, income and allowable expenses (excluding finance costs, which follow the Section 24 credit) are pooled together in the same way as any other rental portfolio.
• If the property is held through a limited company, corporation tax rules already allowed a full deduction for interest, so the loss of the specific FHL trading treatment is a smaller change for company-owned short lets than for those held personally.
• Repeal of the FHL rules does not affect VAT, council tax or business rates treatment, which are separate regimes with their own tests, and a genuinely commercial holiday letting business can still fall within business rates rather than council tax depending on how it is used and let, regardless of the FHL income tax change.

This means the previous tax reason to specifically chase FHL status has gone. Whether a short let still makes commercial sense now depends on the same factors that drive any rental decision: achievable income, void periods between bookings, management overhead and running costs, compared against a standard tenancy. Our guide on how rental income is taxed in the UK sets out the general property income rules that now apply equally to former FHLs.

Worked comparison

A landlord with a former FHL property generating £18,000 a year in gross booking income, with £6,000 in mortgage interest, previously deducted that interest in full before arriving at taxable profit. From the 2025/26 tax year onward, the £6,000 is added back into taxable profit and instead generates a 20% tax credit of £1,200 against the final tax bill. For a higher-rate taxpayer, that is a materially higher effective tax cost on the same finance cost than under the old FHL rules, even though the property itself, its bookings and its running costs have not changed at all.

Record keeping

The abolition does not remove any of your existing record-keeping duties, and in some respects it simplifies them, since former FHL owners no longer need to separately track occupancy days against the FHL qualifying conditions each year. What still matters:

• Keep clear records of gross letting income and every allowable expense, the same as for any rental property, since these still need to be reported through Self Assessment or Corporation Tax as appropriate.
• Track existing capital allowance pools separately if you had unclaimed allowances before the change, since these continue to be written down over time even though no new expenditure qualifies.
• Keep evidence of any transitional position, such as a business that ceased before the relevant 2025 date specifically to lock in the old capital gains treatment, in case HMRC asks questions later.
• If the property is jointly owned by spouses or civil partners, note that from 6 April 2025 the normal joint ownership income-splitting rules apply, rather than any FHL-specific treatment.

Because this is a relatively recent change with transitional detail still being clarified in places, it is worth checking current HMRC guidance (the Property Income Manual sections on FHL repeal are the most detailed source) or speaking to an accountant experienced with short-let portfolios, particularly if your circumstances involve a sale, a change of ownership structure, or unused capital allowances from before April 2025. Property HQ's finance workspace tracks income and expenses per property regardless of letting type, so former FHL properties sit alongside your standard tenancies in the same clean set of records, ready for whichever tax treatment applies.

Disclaimer

This guide is general information for UK landlords, not tax advice. The FHL abolition is a genuine and settled change in the law, but the transitional rules are detailed and your own position may differ - check current HMRC guidance or speak to a qualified accountant before making decisions about a former or current holiday letting property.