News
FHL Reform: No Relief for Holiday Let Landlords
24 Apr 2025
In April 2025, the UK government abolished the tax regime on furnished holiday lets (FHL), removing specific tax advantages previously enjoyed by FHL landlords. Taxation on these properties will now be aligned with other residential and commercial property rentals.
The reform was proposed by former Chancellor Jeremy Hunt in his Spring Budget of 2024. He labelled the FHL tax regime a “distortionary” system that had a negative impact on the property market, particularly in limiting long-term rental availability for local residents. Despite opposition from industry bodies, the new government has implemented the changes to simplify the tax system on rented accommodation and promote fairness across the property sector.
A furnished holiday let in the UK is defined as a property that is available to the public for short-term stays for at least 210 days of the year and is actually let for 105 days or more. The property cannot be used for long-term lets of 31 consecutive days or more.
What FHL landlords need to know
Previously, as a landlord of a furnished holiday let, you could access several tax benefits. Financial costs, such as mortgage interest, could be deducted from your income to help reduce taxable profits, and you were entitled to capital allowances on the cost of refurbishing and furnishing the property. Pension contributions also qualified for certain tax advantages, and Capital Gains Tax relief was available when selling the property.
On 6th April 2025, these benefits were withdrawn, aligning the taxation of furnished holiday lettings with all other types of rental properties.
- Income
Rental income from FHLs will now be taxed under the same rules as other property rental businesses. Full mortgage interest relief has been removed and is now restricted to the basic rate of income tax (20%).
- Capital Allowances
FHL landlords can no longer claim capital allowances on new fixtures, furniture, furnishings or hot tubs. However, Replacement of Domestic Items Relief is still available to help cover the cost of replacing items in your property.
- Capital Gains Tax Relief
Reliefs such as Business Asset Disposal Relief, Rollover Relief and Gift/Holdover Relief are no longer available when selling a furnished holiday let. Instead, the standard Capital Gains Tax rules will apply should you decide to sell your property.
- Pension Contributions
Income from furnished holiday lets is no longer considered relevant UK earnings when calculating your maximum pension contribution relief. If you’re paying into a pension, it’s worth checking how the change might affect your allowance.
The potential impact on your tax bill
For basic-rate taxpayers, there will be generally no change to the amount you pay. However, you could be pushed into the higher tax bracket due to the way taxable profits are calculated. A basic 20% deduction of interest costs from the tax payable will go some way to offset the impact of these changes.
While this new reform aims to simplify the tax system, it could lead to higher tax bills, whether you let out a single holiday home or manage a larger portfolio of short-term rentals. It’s important to review how these changes might affect you, both now and in the future.
We’re here to help you navigate these changes and plan accordingly.
Get in touch today to find out how you could be impacted and explore the best way forward.
