Furnished Holiday Let Tax Changes: What UK Landlords Need to Know

The Furnished Holiday Lettings (FHL) tax regime ended on 6 April 2025, and qualifying holiday lets are now taxed under the same rules as other rental properties.

This means landlords can no longer claim several FHL-specific tax benefits, including certain capital allowances, full mortgage interest deductions, and some Capital Gains Tax (CGT) reliefs.

Here’s everything you need to know about the FHL tax changes and how they affect your holiday let.

Key points

• Mortgage interest is no longer deductible 💷
  Landlords receive a 20% tax reduction for qualifying finance costs instead of deducting the full interest from their rental income. This can increase the tax bill for higher- and additional-rate taxpayers.
• Capital allowances and CGT reliefs have changed 📊
  New spending on furniture and equipment no longer gets the old FHL capital allowance treatment, and Business Asset Disposal Relief is no longer available just because a property was a qualifying FHL.
• FHL income can affect Making Tax Digital obligations 📅
  Former FHL income counts towards qualifying income when determining whether you need to join MTD for landlords.
• Keeping accurate records is more important than ever 🚀
  With different rules now applying to mortgage interest, expenses, replacements, and losses, organised bookkeeping can make tax admin much easier. ANNA can automatically track and categorise your transactions, helping you keep your property finances up to date and stay on top of your tax position.

What was the FHL regime?

First introduced in 1984, the FHL regime provided owners of qualifying holiday properties with a set of tax breaks reserved for trading businesses.

Once your property met the letting and occupancy conditions, you got treated more like a self employed trader than a landlord, even though letting a holiday cottage isn't technically a trade.

However, the government scrapped this distinction at the Spring Budget 2024. From 6 April 2025, former FHL properties became part of a UK or overseas property business. Now they're taxed alongside any other rental income.

The biggest Furnished Holiday Let tax changes

Here are the biggest FHL changes you need to be aware of:

Mortgage interest and finance costs

Under the old rules, you deducted the full amount of your mortgage interest from your rental income before working out your tax bill, the same way a business deducts its costs.

With the new rules, that's no longer the case. You now get relief in the form of a 20% tax credit on your finance costs, which is the same restriction that's applied to other residential landlords since 2017.

This means a holiday let can leave you with a higher tax bill even when a large amount of its income goes towards paying the mortgage.

Capital allowances and equipment

Furnished holiday lets used to allow you to claim capital allowances on furniture, fixtures, and equipment. This perk is no longer available for new spending from April 2025 onwards.

Instead, you claim under replacement of domestic items relief, which covers the price of replacing a worn-out item but not the cost of the first purchase. So, if you're furnishing a holiday let for the first time or upgrading rather than replacing, you won't get the same deduction you'd have had before.

If you had unclaimed capital allowances when the FHL regime ended, you can continue to claim them under the existing capital allowances rules. The amount you can claim depends on the type of allowance and the expenditure involved, so check your capital allowances records.

💡 Did you know?

ANNA’s Auto Accountant can help you track expenses and categorise them correctly as they happen, so you're not digging through a year of receipts to work out what you can and can't claim when the rules shift again.

Capital Gains Tax and Business Asset Disposal Relief

Selling a furnished holiday let used to come with a genuine tax advantage. Because FHLs qualified for Business Asset Disposal Relief, you could pay Capital Gains Tax at just 10% on the sale, rather than the standard residential property rates.

This relief is no longer available for FHLs sold. You’re now supposed to pay CGT at the same rates as any other landlord selling a residential property.

For the 2026/27 tax year, the rates are:

• 18% on gains within your available basic rate band
• 24% on gains above the basic rate band

The rate that applies to your gains depends on your taxable income and the portion of your gains that falls within your available basic rate band. Other CGT rules, such as the £3,000 annual exempt amount for 2026/27, can also affect the amount you pay.

Pension contributions

FHL profits used to count as relevant UK earnings for pension purposes, which meant you could base tax-relieved personal pension contributions on your qualifying FHL income.

Did you know?

From 6 April 2025, FHL income is treated as ordinary property income and no longer counts as relevant earnings. This means you can’t use profits from your holiday let to increase your personal pension contributions and receive tax relief.

You can still contribute to a pension, but tax relief on personal contributions is limited to 100% of your relevant UK earnings for the tax year, subject to the annual allowance.

If you have other relevant earnings, such as employment or self employment income, these can still support tax-relieved contributions. If your FHL income previously made up a significant part of your relevant earnings, your tax-relieved pension contribution limit may be lower from 2025/26 onwards.

Splitting profits with a spouse or civil partner

Under the FHL regime, married couples and civil partners who jointly owned a property could split the profits however it suited them for tax purposes, regardless of who owned what share of the property.

This flexibility is gone. Now that FHLs are treated as ordinary property income, the default rule applies: profits are split 50:50 between spouses or civil partners who jointly own the property, no matter how the work or ownership is divided.

If you want to keep an uneven split (for example, because one partner does most of the work managing bookings and maintenance), you'll need to submit a Form 17 declaration, and your underlying ownership shares may need to reflect that split too.

How could the changes affect your tax bill?

The biggest financial impact will depend on your rental income, mortgage interest, and marginal tax rate.

For example, suppose your former FHL produces £30,000 of rental income, and you have £10,000 of qualifying mortgage interest.

Under the old FHL rules, you could deduct the £10,000 interest when calculating your taxable FHL profit, leaving £20,000 before other allowable expenses.

Under the new rules, an individual landlord can’t deduct that £10,000 finance cost from property income. Instead, the finance costs can give rise to a 20% tax reduction, worth £2,000 if the full amount qualifies.

The exact tax savings will depend on your other income, expenses, and tax position, but the example above shows why highly leveraged holiday lets can become less tax-efficient under the new rules.

What happens to losses from your former FHL?

The abolition of the FHL regime doesn’t mean unused losses disappear.

From 6 April 2025, former FHL income and losses form part of your normal UK or overseas property business. Property business losses are generally carried forward and set against future profits of the same property business.

This means you should keep records of any losses you had under the old FHL regime and make sure they’re carried into your property business correctly.

If you have several properties, you may also be able to offset a loss from your former holiday let against profits from your other properties within the same property business.

Could MTD for Income Tax affect your holiday let?

The end of the FHL regime doesn’t automatically mean you have to use Making Tax Digital for Income Tax (MTD for ITSA), but your former FHL income can count towards the qualifying income used to determine whether you need to join.

Qualifying income is based on your gross property and self employment income before expenses.

The current MTD rollout timetable is:

• 6 April 2026: Landlords and sole traders with qualifying income over £50,000 for 2024/25.
• 6 April 2027: Landlords and sole traders with qualifying income over £30,000 for 2025/26.
• 6 April 2028: Landlords and sole traders with qualifying income over £20,000 for 2026/27.

💡 Did you know?

If your former FHL means you now need to comply with MTD for ITSA, ANNA’s MTD for Landlords can handle the admin for you, free of charge in 2026/27.

ANNA can track your rental income and expenses, calculate your taxable profit, and prepare and file your quarterly updates and final declaration with HMRC.

What you can still claim

While the FHL tax regime is gone, here are a few things that will carry on as before:

• Allowable expenses: You can still deduct eligible costs, such as cleaning, utilities, insurance, and letting agent fees when calculating your taxable property profit.
• Replacement of domestic items relief: You can still deduct the cost of replacing eligible furniture and equipment, provided the replacement is broadly like-for-like.
• VAT treatment: You may continue applying the normal VAT filing rules if you're VAT-registered or required to register.

How ANNA can help with your holiday let tax admin

With the FHL tax regime now gone, keeping accurate records of your rental income and expenses is more important than ever.

The right bookkeeping system can make it easier to see how your property is performing and keep track of the costs you may be able to claim.

With ANNA, you can:

• Open a dedicated business account: Keep your business finances separate from personal spending and manage payments, income, and expenses from one account.
• Automate your bookkeeping: Let ANNA automatically categorise transactions and keep your financial records up to date, so you don't have to sort through receipts and spreadsheets at the end of the year.
• Track expenses and receipts: Photograph and store receipts to keep your property-related spending organised, making it easier to identify potentially allowable expenses.
• Get real-time tax estimates: Receive up-to-date estimates of your tax position as your income and expenses change, helping you plan for upcoming bills.
• File Self Assessment: Sit back and watch as ANNA calculates and files your Self Assessment returns to HMRC.
• File Corporation Tax: Prepare and file your CT600 and Annual Accounts with HMRC and Companies House if you operate your holiday let through a limited company.
• Set money aside with Smart Pots: Separate money for tax, VAT, bills, and other upcoming costs, so you're less likely to be caught short when a payment is due.
• Get 24/7 support: Get help with your account or tax questions any time of day or night from ANNA’s team of professionals.

Get started with ANNA today and simplify your landlord admin.