The UK's Furnished Holiday Let tax regime changed significantly in April 2025. Here is what every host needs to understand about income tax, CGT, and allowances.
This article is for informational purposes only and does not constitute legal or tax advice. Tax rules change frequently — always consult a qualified accountant or tax adviser before making decisions.
Few areas of property taxation have generated as much discussion in recent years as the Furnished Holiday Let (FHL) regime. The rules changed materially in April 2025, ending a set of reliefs that had made FHL ownership particularly tax-efficient compared to standard buy-to-let. If you own a qualifying holiday let — or are considering buying one — understanding the current position is essential.
This guide explains the FHL qualification rules, what the old regime offered, what has changed, and how to structure your business efficiently under the 2025 rules.
A Furnished Holiday Let is a self-catering property that meets specific HMRC criteria. Until April 2025, meeting those criteria unlocked a separate and more favourable tax treatment than standard property income. Even though some of those advantages have now been removed, the FHL definition still matters for certain allowances and for understanding what used to apply.
To qualify as an FHL, a property must:
For properties in the Republic of Ireland or European Economic Area, a separate EEA FHL regime existed, but this was also abolished in April 2025 following Brexit and subsequent policy review.
If you own more than one FHL property, you can use an averaging election to average the letting days across all your FHL properties to meet the 105-day actual letting test. This is particularly useful where one property underperforms due to renovation works or a poor season.
You must make this election on your self-assessment return within 12 months of the 31 January filing deadline for the relevant tax year.
If your property qualified as an FHL in a previous year but does not meet the 105-day actual letting test in the current year, you can claim a period of grace election for up to two consecutive tax years, preserving FHL status while you work to increase occupancy. Crucially, your intention must have been to meet the letting condition — you cannot use this for a property you barely tried to let.
Understanding what was available until April 2025 is important for two reasons: you may have decisions to make about the transition year, and knowing the history helps you appreciate what reliefs remain.
Unlike standard residential lets (which use the replacement of domestic items relief), FHL owners could claim capital allowances on furniture, white goods, and equipment. This meant the full cost of qualifying items could be written off against profits, rather than only the cost of like-for-like replacements.
This relief is no longer available from April 2025. Transitional rules apply if you had existing pooled plant and machinery — speak to your accountant about whether you need to make a final claim in the 2024/25 tax year.
One of the most significant advantages of the old FHL regime was that mortgage interest and other finance costs were fully deductible against rental profits, unlike standard residential lets where finance costs are restricted to a 20% tax credit under Section 24. This made FHL ownership materially more tax-efficient for higher-rate and additional-rate taxpayers who were funding their properties with mortgages.
This full deduction was abolished in April 2025. From 2025/26, FHL income is taxed in the same way as other property income, with finance costs restricted to the 20% basic rate tax credit.
FHL income was treated as earnings from self-employment for certain purposes, including:
These advantages have been removed. FHL income is now classified as property income, not trading income.
This was arguably the most valuable set of FHL advantages, and the abolition is the most significant change for long-term property investors.
Business Asset Disposal Relief (BADR) — previously known as Entrepreneurs' Relief — allowed FHL owners to pay CGT at just 10% on gains up to £1 million lifetime limit on qualifying disposals. Standard CGT on residential property gains is charged at 18% or 24% (from October 2024) for higher-rate taxpayers.
Rollover Relief allowed FHL owners to defer CGT by reinvesting sale proceeds into a new qualifying business asset.
Gift Hold-Over Relief allowed FHL properties to be gifted to family members with the gain held over, deferring the CGT charge.
Business Asset Gift Relief — similar provisions applied.
All of these reliefs were abolished from April 2025. FHL disposals from 2025/26 are now taxed as standard residential property disposals, at 18% or 24% depending on the taxpayer's income band (the rates that applied from October 2024 following the Autumn Budget 2024).
FHL properties can still claim replacement of domestic items relief — the standard relief available to all residential landlords. This allows you to deduct the cost of replacing (not first purchasing) furniture, appliances, and soft furnishings on a like-for-like basis. If you upgrade an item, only the cost of an equivalent replacement is deductible; the additional cost of the upgrade is not.
All the standard property letting expenses remain deductible:
If your gross property income is below £1,000 per year, you can claim the property allowance and pay no tax on that income. For most commercial holiday let operators, income will exceed this threshold, but it is relevant for hosts who let occasionally.
Under the old FHL regime, FHL losses could not be offset against other income — they could only be carried forward against future FHL profits. This restriction continues under the new regime as property income losses. Losses from FHL activity before April 2025 are subject to specific transitional rules.
For higher-rate taxpayers with larger portfolios, incorporation into a limited company is now more attractive than it was when full finance cost deduction was available to individuals. Within a company:
However, incorporation itself may trigger CGT (at the new 24% rate for residential property) and Stamp Duty Land Tax on transfer of the properties. The break-even point depends on your income level, mortgage leverage, and long-term plans. Specialist tax advice is essential before incorporating.
With the tax advantages reduced, maximising genuine rental income becomes even more important. Higher occupancy at premium rates — rather than relying on CGT and pension advantages — is now the primary driver of FHL profitability.
This means investing in:
If you previously relied on FHL profits as qualifying earnings for pension contributions, you will need to review your pension strategy. Consider alternative sources of relevant UK earnings (employed or self-employed income from other activities) or seek advice on how to make contributions within the new rules.
Properties available for short-term commercial letting for at least 140 days and actually let for at least 70 days in England are assessed for business rates rather than council tax. Most holiday lets qualify for 100% Small Business Rate Relief, resulting in a nil bill — but registration is still required.
Holiday letting can be a VATable supply. If your annual turnover from holiday letting exceeds the VAT registration threshold (£90,000 from April 2024), you must register for VAT and charge VAT at the standard rate (currently 20%) on your letting fees.
Being VAT-registered allows you to reclaim VAT on business costs (refurbishment, furnishings, management software), which can be a significant benefit for capital-intensive operations.
All property income must be declared on a self-assessment tax return. The deadline for online returns is 31 January following the end of the tax year. HMRC is increasingly using data from Airbnb, Vrbo, and other platforms to identify undeclared rental income — Making Tax Digital for Income Tax (MTD for ITSA) will apply to landlords with property income above £50,000 from April 2026.
Managing the financial side of your holiday let — tracking income, expenses, and occupancy data you will need at tax time — is much easier when your entire operation runs through a single platform. LetPilot gives you a clear view of bookings, revenue, and property performance, generating the records your accountant needs at the end of the year without hours of spreadsheet work. Try LetPilot free at letpilot.co — no credit card required.