Property

Furnished Holiday Lets Abolished: What Landlords Must Do Now

10 March 2026

6 min read

By Suyesh Sharma

Written by Suyesh Sharma, FCCA, Founder and Managing Director, Metta Accountants.

Published 10 March 2026

After years of political pressure, the Furnished Holiday Let (FHL) regime was abolished from 6 April 2025. Properties that previously qualified are now treated exactly the same as standard residential lettings - and the tax consequences are severe for landlords who built their strategies around the former regime's advantages.

What the FHL regime provided - and what you have lost

Business Asset Disposal Relief

FHL properties qualified as business assets for BADR purposes. On sale, gains were taxed at 10% (rising to 14% and then 18% under the new CGT regime). That preferential rate is gone - disposals are now taxed at 18%/24% like any other residential property.

Capital Allowances

FHL landlords could claim capital allowances on furniture, fixtures, and equipment - including 100% first-year allowances. Standard residential lettings do not qualify; only the Replacement of Domestic Items Relief (limited to like-for-like replacements) is available.

Pension Contribution Relevance

FHL income counted as "relevant UK earnings" for pension contribution purposes, allowing FHL landlords to make pension contributions based on their holiday let profits. This ceases - FHL income is now property income, which does not qualify.

Full Mortgage Interest Relief

FHL properties were exempt from the Section 24 restriction. From April 2025, mortgage interest on holiday lets is subject to the same 20% tax credit limitation as standard buy-to-lets, significantly increasing the effective tax rate for higher-rate landlords.

The financial impact - a worked example

Consider a higher-rate taxpayer with a holiday cottage generating £25,000 in annual rent and carrying £12,000 in mortgage interest. Under the old FHL rules:

Taxable profit: £13,000 (after deducting mortgage interest)
Income tax at 40%: £5,200

Under the new rules (from April 2025):

Taxable profit: £25,000 (mortgage interest not deductible)
Income tax at 40%: £10,000
Less 20% tax credit on £12,000 interest: (£2,400)
Net income tax: £7,600 - an increase of £2,400 per year.

For landlords with multiple holiday lets or larger mortgage balances, the annual impact can be tens of thousands of pounds.

Transitional considerations

Capital allowances claimed prior to April 2025 do not simply disappear. Balancing allowances and charges arise when an FHL property leaves the FHL regime and the pool of qualifying expenditure must be dealt with. For properties with significant unclaimed allowances or unrelieved pools, the transition to the new regime may generate a one-off deduction or charge that should be carefully managed.

Properties that were under contract to be sold before April 2025 but completed after that date are treated as FHL disposals under anti-forestalling provisions - HMRC has published specific guidance on this point.

What to do now

Consider moving into an SPV limited company to restore full mortgage interest deductibility. Be aware that incorporating an existing personal property triggers CGT and SDLT - obtain a full financial model before proceeding.
Review the business case for each property. With the removal of BADR, the CGT cost of exit has increased significantly. Some landlords may choose to hold, others to sell before further rate changes - the decision depends heavily on your basis of cost and expected future gains.
Revisit your pension strategy. If FHL income formed the basis of your pension contributions, you need an alternative source of qualifying earnings - typically salary from employment or self-employment.
Consider converting to long-term lets. Standard AST lettings offer greater void period protection and can be more efficiently structured inside a company. The trade-off against the higher holiday let income must be modelled carefully.