Furnished Holiday Let Tax Rules After the Abolition

The FHL Regime Ended in April 2025

The furnished holiday let regime was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax, under Schedule 5 of Finance Act 2025. A holiday cottage is now taxed like any other residential letting. The 2026-27 tax year is the first full year with no FHL advantages left to claim, and the first returns reflecting the change, for 2025-26, are due by 31 January 2027.

The old occupancy tests no longer decide anything for income tax. Whether the property was available for 210 days or actually let for 105 makes no difference to HMRC now, although similar day counts still matter for business rates. HMRC published a clarification of the transitional rules that answers most of the awkward cessation questions.

What Holiday Let Owners Lost

• Capital allowances on new furniture, fixtures and equipment. Replacement of domestic items relief applies instead, and only to like-for-like replacements, not initial kit-outs.
• Full mortgage interest deduction. Interest now earns only the 20% basic rate credit that other landlords have lived with since 2020.
• Pension headroom. Holiday let profits no longer count as relevant UK earnings, so they cannot support pension contributions on their own.
• Capital gains tax reliefs. Business asset disposal relief, rollover relief and gift holdover relief all fell away for disposals from 6 April 2025.
• Flexible income splits. Jointly owned holiday lets between spouses now default to a 50/50 split unless a Form 17 declaration evidences unequal beneficial ownership.

The interest change bites hardest on geared owners. Finance costs no longer reduce profit at all; instead the 20% basic rate credit is knocked off the final bill, which inflates taxable income on the way through and can drag owners over the £50,270 higher rate threshold or into the child benefit charge.

Transitional Rules Still Running in 2026-27

Capital allowance pools built up before April 2025 did not vanish. Writing down allowances continue on the existing pool until it is exhausted, or a small pools claim clears the balance. What changed is that no new expenditure can be added.

FHL losses unused at 5 April 2025 rolled into the general property business, so they relieve future rental profits from any of your UK lets, not just the holiday property.

Business asset disposal relief survives only where the holiday letting business genuinely ceased before 6 April 2025 and the sale completes within three years of cessation. HMRC is explicit that the abolition itself is not a cessation. The rate follows the disposal date: 14% for 2025-26 disposals and 18% from 6 April 2026, against the 24% higher residential CGT rate, so the saving in 2026-27 is six percentage points, not the fourteen it once was.

Anti-forestalling rules catch contracts entered into on or after 6 March 2024 that completed after abolition, so a pre-signed contract does not preserve the old reliefs unless it was demonstrably not tax-motivated.

How a Holiday Let Is Taxed Now

Profits are ordinary property income: rent minus running costs such as agent commission, cleaning, utilities, insurance and repairs, under the same rules on allowable expenses for landlords as any long-term let. The £1,000 property allowance is available where it helps.

On sale, residential CGT applies at 18% or 24% above the £3,000 annual exempt amount, and the 60-day CGT reporting deadline applies just as it does to a buy-to-let disposal.

VAT is the one place holiday lets remain different from ordinary lets, in the wrong direction. Holiday accommodation is standard-rated rather than exempt, so once total taxable turnover passes £90,000 the owner must register and charge 20% VAT on bookings.

Owners who previously filed on the FHL pages need their 2025-26 landlord self assessment prepared on the standard property pages, with the pool, the carried losses and any cessation claims handled correctly in that first post-abolition return.

Business Rates or Council Tax

The business rates rules survived untouched, because they belong to the Valuation Office Agency rather than HMRC. In England a self-catering property sits on the business rates list only if it was available to let commercially for at least 140 nights in the last 12 months, actually let for at least 70, and will be available for 140 in the year ahead.

Qualifying can be worth thousands, since small business rate relief often takes the bill to nil, while a property that falls back onto council tax may face a second home premium of up to 100% that many councils now charge. The policy background to the abolition shows how deliberately the tax gap between holiday lets and ordinary lettings was closed, and there is no sign of a reversal.

Frequently Asked Questions

Can I still claim capital allowances on a holiday let?

Only on the pool that existed at 5 April 2025. Writing down allowances continue until that pool runs dry, but new spending on furniture or equipment gets replacement of domestic items relief at best, which excludes initial purchases and any element of upgrade.

Do holiday lets pay council tax or business rates?

It depends on the letting pattern. Meet the 140-night availability and 70-night actual letting tests in England and the property is rated for business rates, often at nil after small business rate relief. Miss them and council tax applies, potentially with a second home premium.

Do I have to split holiday let income 50/50 with my spouse now?

Jointly held property income between spouses is taxed 50/50 by default. If beneficial ownership is genuinely unequal, a Form 17 declaration with supporting evidence moves the split to the real proportions, but it only works from the date it is signed and must reach HMRC within 60 days.

Is a holiday let still worth running after the FHL abolition?

Sometimes. Gross yields on well-located short lets can still beat a long-term tenancy, and business rates treatment remains available. But the comparison must now be run on post-tax numbers, with restricted interest relief, no capital allowances on new spend, and 24% CGT on the way out for higher rate taxpayers.