The Furnished Holiday Let (FHL) tax regime was abolished on 6 April 2025. If you owned an FHL, your holiday let is now treated as a standard residential rental property — and four significant tax advantages have disappeared.
The 2025/26 tax year is the first return cycle under the new rules. If you’re a former FHL owner filing your Self Assessment for 2025/26, here’s what changed, what it means for your tax bill, and what you need to do differently.
What Was the FHL Regime?
Before abolition, a property qualified as an FHL if it met these conditions:
- Available to let for at least 210 days in a tax year
- Actually let for at least 105 days in a tax year (excluding lets over 31 days)
- Long lets (over 31 days) didn’t exceed 155 days in a tax year
- Furnished — let with furniture and equipment
FHLs enjoyed special tax treatment that made them significantly more advantageous than standard residential rentals. According to HMRC’s abolition guidance, the FHL regime was introduced in 1984 and provided four key tax advantages:
- Mortgage interest was fully deductible — not subject to the Section 24 restriction that caps relief at 20% for other landlords
- Capital allowances could be claimed on furniture, fixtures, and equipment
- Business Asset Disposal Relief (BADR) was available on sale, meaning capital gains were taxed at 10% instead of standard CGT rates
- Profits counted as relevant UK earnings for pension contribution purposes
All four of these advantages ended on 6 April 2025.
What Changed: The Four Lost Advantages
1. Mortgage interest: now restricted to a 20% tax credit
This is the single most material change for most former FHL owners with mortgages.
Before: Mortgage interest was a fully deductible expense against your FHL rental income. If your rental income was £30,000 and mortgage interest was £12,000, your taxable profit was £18,000.
After: Mortgage interest is now subject to Section 24 — the same restriction that has applied to standard residential landlords since 2017. You can no longer deduct mortgage interest as an expense. Instead, you receive a 20% tax credit on the interest, which reduces your overall tax bill.
According to HMRC’s clarification guidance:
“After the changes individual landlords can still obtain relief for finance and mortgage interest costs, but at the basic rate of Income Tax of 20%, in the same way as other landlords.”
What this means in practice:
| Before (FHL) | After (standard rental) | |
|---|---|---|
| Rental income | £30,000 | £30,000 |
| Mortgage interest | £12,000 | £12,000 |
| Taxable profit | £18,000 | £30,000 (interest not deducted) |
| Tax at 40% | £7,200 | £12,000 |
| Tax credit on interest (20% × £12,000) | N/A | £2,400 |
| Net tax due | £7,200 | £9,600 |
In this example, the Section 24 restriction costs you an extra £2,400/year in tax. The impact is largest for higher-rate taxpayers with large mortgages.
What to do: Record mortgage interest separately in your accounting software so the 20% tax credit can be calculated correctly. See our Airbnb income recording guide for how to do this in practice.
2. Capital allowances: replaced by replacement of domestic items relief
Before: FHL owners could claim capital allowances on furniture, fixtures, and equipment — deducting the cost from rental profits in the year of purchase (or via the annual investment allowance).
After: Capital allowances are no longer available on new expenditure from 6 April 2025. Instead, you use the replacement of domestic items relief — which only covers the cost of replacing an item, not buying a new one for the first time.
According to HMRC’s clarification:
“After repeal capital allowances are no longer available on fixtures, furniture or furnishings. Replacement of Domestic Items Relief will then be available on replacement items.”
What about existing capital allowance pools? If you had qualifying expenditure in a capital allowance pool before 6 April 2025, you can continue claiming writing down allowances until the pool is used up. You just can’t add new expenditure to the pool.
What to do: For new furniture or equipment, use replacement of domestic items relief (only when replacing an existing item). For the existing pool, continue claiming writing down allowances as normal. See our Airbnb income recording guide for the practical details.
3. Capital gains: no more BADR, standard CGT rates apply
Before: When you sold an FHL, you could claim Business Asset Disposal Relief (BADR), which taxed the capital gain at 10% instead of standard CGT rates.
After: BADR is not available for disposals on or after 6 April 2025. According to HMRC’s Capital Gains Manual (CG73505):
“BADR will not be available where there is a disposal of the whole or part of a FHL business on or after 6 April 2025.”
CGT on former FHLs is now charged at standard residential property rates:
- 18% for basic-rate taxpayers
- 24% for higher-rate taxpayers
The anti-forestalling rules: HMRC introduced rules to prevent people from signing contracts before 6 April 2025 (when BADR was still available) but completing after that date. If you exchanged contracts before 6 April 2025 but completed after, the disposal is still treated as happening at contract exchange — so BADR may still apply. But if you tried to use conditional contracts or other arrangements to game the timing, the anti-forestalling rules may catch you.
What to do: If you’re planning to sell a former FHL, budget for CGT at 18% or 24% (not 10%). If you disposed of an FHL before 6 April 2025, BADR may still be available — check with an accountant.
4. Pension contributions: FHL profits no longer count as earnings
Before: FHL profits counted as relevant UK earnings for pension relief purposes. This meant you could make tax-relieved personal pension contributions based on your FHL income.
After: From 2025/26, FHL profits no longer count as relevant UK earnings. According to Property Tax Partners’ analysis:
“For a former-FHL owner whose only earned income was holiday-let profit, the tax-relieved personal contribution limit collapses to £3,600 gross.”
If you have other earned income (PAYE salary, self-employment profits), your pension contribution limit is based on that income instead. But if FHL profit was your only earned income, your tax-relieved pension contributions drop to £3,600 gross per year — the minimum available to non-earners.
What to do: If you were relying on FHL profits for pension contributions, review your pension strategy. You may need to generate other earned income (e.g., through a separate self-employment activity) or accept the £3,600 limit. This is a significant change for people who were using FHL profits as the basis for their retirement planning.
What Didn’t Change
Not everything changed with the abolition. According to HMRC’s clarification guidance:
- You don’t have to change how you rent the property. You can still operate it as a short-term holiday let — the abolition only affects the tax treatment, not the business model.
- VAT, Council Tax, and business rates are unaffected. These are separate tax regimes.
- FHL losses carry forward as property business losses. If your FHL made losses in previous years, they’re now treated as losses of your ongoing UK or overseas property business and can be offset against other property income.
- Existing capital allowance pools can still be written down (see above).
- The property is still a rental business — it hasn’t “ceased” in the legal sense. The FHL rules were simply disapplied; the underlying property business continues.
How This Interacts With MTD
Former FHLs are now part of your standard UK property business for MTD purposes. This means:
- One combined quarterly update for all UK property income (you no longer send a separate update for the FHL)
- Simplified reporting applies if your total property income is under £90,000 — just record income/expense, no category breakdown (though finance costs must still be recorded separately)
- Section 24 mortgage interest is handled by your software or accountant at the final declaration stage, not in quarterly updates
See our MTD for landlords guide for the property-specific MTD rules, and our MTD quarterly updates guide for deadlines and the simplified reporting rules.
Action Checklist for Former FHL Owners
If you owned an FHL and are now filing under the new rules for 2025/26:
-
Record mortgage interest separately in your accounting software so the 20% tax credit can be calculated. Don’t deduct it as a full expense.
-
Stop claiming capital allowances on new furniture, fixtures, or equipment. Use replacement of domestic items relief for replacements only.
-
Continue claiming writing down allowances on your existing capital allowance pool until it’s used up.
-
Review your pension contributions — if FHL profit was your only earned income, your tax-relieved limit drops to £3,600/year. Consider whether you have other earned income to base contributions on.
-
Budget for CGT at 18% or 24% if you’re planning to sell — not the 10% BADR rate you may have been expecting.
-
Combine the former FHL with your other property income for MTD quarterly updates — it’s no longer a separate income source.
-
Carry forward FHL losses as property business losses — they can be offset against your other rental income.
-
Check if you disposed of an FHL before 6 April 2025 — BADR may still be available for pre-abolition disposals. If you exchanged contracts before that date, the timing rules may work in your favour.
The Bottom Line
- The FHL regime ended on 6 April 2025. Former FHLs are now standard residential rentals.
- Four tax advantages disappeared: full mortgage interest deduction, capital allowances, BADR at 10%, and pension-relevant earnings status.
- Section 24 is the biggest hit for mortgaged FHL owners — mortgage interest is now restricted to a 20% tax credit, which can cost thousands per year for higher-rate taxpayers.
- Existing capital allowance pools survive — you can keep claiming writing down allowances, just not add new expenditure.
- FHL losses carry forward as property business losses.
- You don’t have to stop operating as a holiday let — only the tax treatment changed, not the business model.
- The 2025/26 Self Assessment is your first return under the new rules — make sure your records and software are set up for the new treatment.
For the full overview of how UK property tax works for landlords — the three income regimes, Section 24, allowable expenses, the Non-Resident Landlord Scheme, and capital gains — see our property tax UK landlord hub. For how to record former FHL income in accounting software, see our Airbnb income recording guide. For MTD rules for landlords, see our MTD for landlords guide. For the quarterly update deadlines and simplified reporting rules, see our MTD quarterly updates guide.