Big changes came into place for holiday let owners in as the special tax rules for Furnished Holiday Lets (FHLs) are being abolished. From 6th April 2025 (or 1st April for limited companies), the FHL tax regime was scrapped entirely. With the FHL regime gone, owners will lose four major tax perks that set them apart from other property businesses—so if you’re affected, it’s time to get your tax planning skates on.
If you have a holiday cottage or flat you rent to tourists, these updates could really shake up your profit margins and long-term plans. HMRC pushed ahead with the changes despite a lot of pushback from groups. The impact isn’t he same for everyone, though—it all depends on your own setup and how you’ve been running things.
Getting your head around these tax changes now means you’ve got a bit of breathing room to tweak your financial strategy. Maybe it’s time to rethink how your property is classified, look again at your pricing, or have a chat with a tax adviser about your options. With some planning, you can soften the blow of these holiday let changes and keep your investment ticking over in this new tax landscape.
Overview of FHLs in 2025
April 2025 marked a big shift for FHLs. Both individual landlords and companies will see a total shake-up of the tax rules that FHL owners have relied on for years. Holiday lets will now be taxed in the same way as any other residential property.
Definition and Criteria for FHLs
FHLs are basically homes that come fully kitted out and are rented to holidaymakers for short breaks. To qualify, your property had to be available to let for at least 210 days a year, and actually let for 105 of those days.
The property needed to be in the UK or EEA, and you had to be letting it on a commercial basis with a view to making a profit. Up until April 2025, FHLs had a different tax status from ordinary rental properties.
HMRC treated FHLs more like trading businesses than investments. That’s meant some tax incentives—capital allowances, capital gains relief, and the chance to offset losses against other income.
Changes in Legislation
From 6th April 2025 for Income Tax and 1st April 2025 for Corporation Tax, the FHL rules are were abolished.
Here’s what’s changed:
- No more trading status
- Capital allowances for furniture and fittings vanish
- Business Asset Disposal Relief (BADR) (previously Entrepreneurs’ Relief) disappears
- Pension contribution perks are gone
Not every owner will feel the pinch. If your property never met the FHL criteria, you probably won’t notice. But if you had been using those FHL tax breaks, you’ll want to brace for a bigger tax bill.
Impact of Changes on Taxation
The end of the FHL tax regime brings some hefty tax consequences for property owners, particularly affecting taxable profits. These changes touch on income tax, capital gains, and inheritance planning.
Income Tax Implications
FHL owners are losing some handy income tax advantages. You can lo longer offset finance costs like mortgage interest against rental income like before, as FHL tax perks are ending. Instead, you only get a basic rate tax credit (20%), not relief at your own tax rate.
Capital allowances on furniture and fittings? Those have gone too. You used to be able to write off things like furniture and appliances, but now, you have to rely on replacement furniture relief instead.
FHL profits don’t count as trading income anymore, so you can’t use them for tax-advantaged pension contributions. That’s another door closed.
And if your holiday let makes a loss, you can’t offset that against your other income. Losses can only be set against future profits from the same property business.
Capital Gains Tax Adjustments
The capital gains tax (CGT) situation has changed too, affecting how chargeable gains are calculated. If you sell your holiday let, you lose access to reliefs like BADR.
That means the 10% tax rate on qualifying gains up to £1 million is off the table. Now, you’ll pay CGT at the usual residential rates—18% or 28%, depending on your income tax band.
Hold-over and rollover reliefs were scrapped too. These used to let you defer CGT when gifting or reinvesting in another business asset.
For long-term owners, that could mean a much bigger tax bill when you sell. About a third (33%) of owners say these changes will hit them hard.
Capital Allowances and FHLs
Capital allowances for FHLs are taking a real hit. Up April, these tax breaks had been pretty valuable, letting owners claim relief on furniture, equipment, and other qualifying stuff.
Understanding Capital Allowances
Capital allowances let you knock the cost of certain assets off your profits before tax. For FHL owners, that’s been a big plus compared to regular landlords.
You used to be able to claim for things like:
- Furniture (beds, sofas, tables)
- Kitchen appliances and white goods
- Heating systems and boilers
- Bathroom fixtures
- Carpets and flooring
The Annual Investment Allowance (AIA) was also useful, letting you deduct the full cost of big-ticket items in the year you buy them, up to the current limit.
If something didn’t qualify for AIA, you could still claim Writing Down Allowances at 18% or 6% per year, depending on the item. Now, you’ll have to rely on domestic items relief for replacing furniture and fittings.
Applying the New Rules
FHL tax incentives have vanished, changing how capital allowances work for holiday lets.
If you added qualifying expenditure to your capital allowance pool by 5 April 2025, you could still claim Writing Down Allowances and balancing adjustments..
Anything you now buy will no longer qualify for capital allowances. Your property will be taxed as a standard rental. That means:
- No more capital allowances for furniture and equipment
- You have to use Replacement Domestic Item relief for swapping out old furniture or appliances (not for initial purchases)
- Some structural elements might still get limited capital allowances
Tax Reliefs and Exemptions
FHLs had some pretty generous tax breaks compared to standard rentals for a long time. But those perks were chopped, and FHL owners have to rethink how they handle their tax affairs.
BADR
BADR was a big plus for FHL owners under the previous rules. If you sold your holiday let, you could get a reduced 10% capital gains tax rate instead of the usual 18% or 28%. That’s for lifetime gains up to £1 million.
This perk is no longer around for FHL owners. You’ll have to pay capital gains tax at the normal rates when you sell.
Pension Contributions and Tax Reliefs
Profits from your FHL used to count as earnings for pension purposes. So you could make tax-advantaged pension contributions based on that income—something you couldn’t do with standard rental income.
FHL profits now won’t count as relevant earnings for pension contributions.
If pension planning matters to you, you might want to:
- Max out pension contributions as soon as you can
- Chat with a financial adviser about other retirement strategies
- Take another look at your investment mix to help balance things out
HMRC Guidance and Compliance
HMRC has put out some guidance to help holiday let owners handle the switch. The new rules lay out how your FHL will be classified for tax purposes after the changes kick in. Getting your head around the official advice and what you actually need to do is going to be important for staying on the right side of tax rules.
Updated HMRC Guidelines
HMRC has released details about the scrapping of the furnished holiday lettings tax regime from April 2025. The new rules lay out how your holiday let will be taxed after the changes kick in.
The framework removes tax advantages in four main areas FHL owners used to get. You’ll need to get familiar with how these properties will be classified moving forward. HMRC has also answered some common questions to help clear up confusion from property owners, including how the anti-forestalling rule applies.
It’s worth checking out the full GOV.UK guidance for the step-by-step on the transition.
FHL Owners’ Responsibilities
If you own an FHL business, there are a few things you’ll need to stay on top of to comply with the new rules. Keeping accurate records of all your property business income and expenses is a must.
From April 2025, you’ll want to:
- Rethink your tax planning to deal with the loss of FHL perks
- Update your accounting so it matches the new property classification
- Report rental income under the regular property income rules
- Review your capital gains position if a sale is on your mind
It’s probably smart to talk to a tax adviser who knows property. They can help you figure out the best way to get through the changes and keep your business running smoothly.
Preparation and Tax Planning for FHL Owners
Some planning ideas worth considering:
- Chat with a tax adviser who knows the ins and outs of holiday lets
- Take another look at your mortgage and how your property is financed
- Think about whether it makes sense to keep your property as an FHL or switch to regular letting
- Consider if owning through a company might work out better in the long run
The loss of special FHL tax perks means it’s smart to compare your potential tax bills under both the old and new rules. That way, you’ll have a clearer picture before making any big decisions.
Sure, the FHL tax benefits are changing, but with a bit of planning, holiday letting can still be a solid option. It just takes a little more thought now, that’s all.
We Can Help
At AMS Accountancy, we understand how these changes affect landlords and property owners. Whether you need to reassess your tax position, update your records, or plan your next steps, we’re here to support you. We’ll give you clear, practical advice to help you stay compliant and protect your income.