If you own a furnished holiday let (FHL), one of the most significant property tax changes in recent years has now taken effect.

From 6 April 2025 (or 1 April 2025 for companies), the special Furnished Holiday Let tax regime was abolished. This means former FHL properties are generally taxed under the same property income rules as other UK residential property businesses.

For many owners, this change removes several valuable tax advantages that were previously available.

What Has Changed?

Before April 2025, qualifying Furnished Holiday Lets benefited from several tax rules that treated them more like a trading business than a standard residential letting.

These included:

• More favourable treatment of finance costs.
• Capital allowances on qualifying furniture and equipment.
• Access to certain Capital Gains Tax reliefs.
• Recognition of FHL profits as relevant UK earnings for pension contributions.

With the abolition of the FHL regime, these special rules have largely been withdrawn.

Finance Costs (Mortgage Interest)

One of the most significant changes affects mortgage interest relief.

Individual landlords can no longer deduct mortgage interest from rental income when calculating taxable profits. Instead, they generally receive a basic-rate Income Tax reduction (20%) on qualifying finance costs, bringing former FHLs into line with other residential property businesses.

Companies are not affected by this restriction.

Capital Allowances

Capital allowances are generally no longer available for new expenditure on furniture, fixtures and equipment for former FHL properties.

Instead, eligible replacement costs may qualify for Replacement of Domestic Items Relief.

Where a capital allowance pool existed before the abolition of the regime, Writing Down Allowances can generally continue until that pool has been fully relieved.

Capital Gains Tax Reliefs

The abolition of the FHL regime also affects Capital Gains Tax.

Former Furnished Holiday Lets generally no longer qualify for:

• Business Asset Disposal Relief.
• Business Asset Rollover Relief.

As a result, some owners may face a higher Capital Gains Tax liability when selling their property.

Pension Contributions

Another important change is that profits from former Furnished Holiday Lets no longer count as relevant UK earnings for pension contribution purposes.

This could reduce the amount of tax-relievable pension contributions available to some individuals.

What Does This Mean for Property Owners?

Depending on your circumstances, these changes could mean:

• A higher tax liability.
• Less generous tax relief on finance costs.
• The loss of certain Capital Gains Tax reliefs.
• Reduced pension planning opportunities.
• Fewer tax planning options than were previously available.

The impact will vary depending on your ownership structure, borrowing levels and long-term investment plans.

How Business Management Consultation Can Help

At Business Management Consultation, we can help you:

• Understand how the abolition of the FHL regime affects your property.
• Review your current tax position.
• Assess the impact on your future tax liabilities.
• Identify any planning opportunities that remain available.
• Ensure your property affairs remain compliant with the latest legislation.

Reviewing your position now can help you adapt to the new rules and avoid unexpected tax consequences.

Conclusion

The abolition of the Furnished Holiday Let regime marks a significant change for holiday property owners. While these properties can still provide attractive investment opportunities, many of the tax advantages that previously applied have now been removed.

Understanding the new rules and reviewing your property strategy can help you make informed decisions and manage your tax position effectively.

Call us today on 01273 777 333 to discuss how the Furnished Holiday Let tax changes may affect your property portfolio.