Furnished holiday lettings after abolition

The furnished holiday lettings (FHL) regime was abolished by Schedule 5 to the Finance Act 2025, with effect from 6 April 2025 for income tax and capital gains tax and from 1 April 2025 for corporation tax. Holiday lets are now simply part of the owner’s UK or overseas property business and are taxed like any other letting. Transitional rules let existing capital allowance pools run off and let unused FHL losses be carried into the ordinary property business.

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What was the FHL regime and what did it give owners?

The FHL rules were introduced in 1984. To qualify, a property had to be available for short term letting to the public for at least 210 days and actually let for at least 105 days in the tax year, and it could not be let on long term lets of more than 31 days for significant periods. HMRC’s policy paper on the abolition lists four advantages that a qualifying letting had over an ordinary rental:

exemption from the finance cost restriction, so mortgage interest was deducted in full rather than given as a basic rate tax reduction;
capital allowances on furniture, equipment and fixtures;
access to capital gains reliefs for trading assets, such as business asset disposal relief, rollover relief and gift relief;
FHL profits counted as relevant UK earnings, which set the maximum tax relieved pension contribution.

The government’s stated aim in removing these was fairness between holiday let owners and other residential landlords.

When did the abolition take effect?

The income tax changes in Part 1 of Schedule 5 apply for the tax year 2025 to 2026 onwards, and the corporation tax changes apply to accounting periods beginning on or after 1 April 2025. The capital allowances changes apply to income tax periods of account beginning on or after 6 April 2025. A company whose accounting period straddled 1 April 2025 treats the two parts as separate accounting periods for these purposes. Capital gains changes apply to disposals on or after 6 April 2025, or 1 April 2025 for companies.

A holiday letting that started during 2024 to 2025 could still qualify for that year, but FHL status applied only to the tax year 2024 to 2025 (or up to 31 March 2025 for a company).

HMRC’s clarification note is clear that repeal does not mean the business has ceased. A holiday let carried on before and after April 2025 is a continuing property business until there is an actual cessation of letting activity. That point drives several of the transitional rules below.

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How are former holiday lets taxed now?

Income from a former FHL is part of the owner’s UK property business, or overseas property business for a property abroad, and is pooled with any other lettings. There is no longer a separate FHL computation. The rules for revenue expenses such as cleaning, utilities, repairs and consumables are unchanged.

The main differences now are:

Finance costs. Individual owners get relief for mortgage interest and other finance costs only as a basic rate tax reduction of 20%, like other residential landlords. Companies are not subject to this restriction. See landlord mortgage interest relief.
Pensions. Section 189 of the Finance Act 2004 no longer treats FHL profits as relevant UK earnings, so property profits no longer support personal pension contributions. See pension contributions and tax relief.
Spouses and civil partners. Exceptions D and DA in section 836(3) of the Income Tax Act 2007 have been repealed. A married couple who jointly own a holiday let are now taxed 50:50 by default, as for any other jointly held property, unless they make a valid Form 17 declaration (HMRC manual TSEM9820).

The repeal does not change VAT (holiday accommodation remains standard rated), council tax or business rates, or the basic question of whether an activity is property income or a trade. HMRC also confirms that eligibility to pay voluntary Class 2 or Class 3 National Insurance contributions is unaffected.

What happens to capital allowance pools?

Paragraph 18 of Schedule 5 deals with plant and machinery allowances. Where a person was carrying on an FHL business at the end of 2024 to 2025 (or the last accounting period beginning before 1 April 2025) and carries on the corresponding property business afterwards:

any unrelieved qualifying expenditure in the FHL pool is carried forward and allocated to the appropriate pool of the UK or overseas property business;
plant in use is treated as brought into use for the property business on the day it was first used in the FHL business;
the change itself does not count as a cessation or a disposal, so no balancing event arises just because the regime ended;
the rule in section 35 of the Capital Allowances Act 2001, which normally denies allowances for plant in a dwelling house, does not apply to that carried forward expenditure.

The result is that writing down allowances, balancing allowances and balancing charges continue on the pooled expenditure until it is used up or a small pool claim is made. New expenditure is different. From April 2025 capital allowances are not available on fixtures, furniture or furnishings in a holiday home, which is a dwelling house. Instead, replacement of domestic items relief under section 311A ITTOIA 2005 can be claimed for replacing items such as sofas, beds and appliances, but not for the first purchase of an item or for fixtures. Buyers of a former holiday let should note HMRC’s view that a section 198 fixtures election will not give them allowances, because section 35 treats their expenditure as non qualifying.

Illustration only. An owner has £6,000 left in a main pool at 5 April 2025. That balance moves into the UK property business pool and continues to attract writing down allowances. In 2026 the owner replaces a worn sofa for £900 and buys a dishwasher for £400 for a kitchen that never had one. The sofa qualifies for replacement of domestic items relief. The dishwasher is a first purchase rather than a replacement, so it gets neither that relief nor capital allowances.

What happens to unused FHL losses?

Under the old rules an FHL loss could only be carried forward against future profits of the same FHL business. Paragraph 16 of Schedule 5 treats any unrelieved loss from a UK FHL business as if it had been made in the person’s UK property business, for carry forward under section 118 ITA 2007. Losses of an EEA FHL business move into the overseas property business. Paragraph 17 does the same for companies, so the loss is relieved under section 62(5) or 66(3) CTA 2010.

In practice this widens relief: a former FHL loss can now be set against profits from ordinary lettings in the same business. It does not create any new right to set the loss against employment or other general income. See rental losses for how carried forward property losses work.

What about capital gains reliefs on a sale?

From 6 April 2025 a holiday letting business is no longer treated as a trade for capital gains purposes, so the following reliefs are no longer available for new events: business asset disposal relief, rollover relief, gift relief under section 165, relief for loans to traders and, for companies, the substantial shareholding exemption based on FHL activity. There are limited protections (HMRC manual CG73505):

business asset disposal relief can still apply to a disposal on or after 6 April 2025 if the FHL business actually ceased before that date and the disposal falls within the normal three year period after cessation;
rollover relief remains available where the old FHL asset was disposed of before 6 April 2025 and the gain is rolled into an asset used in a genuine trade.

An anti forestalling rule in paragraph 14 targets unconditional contracts entered into from 6 March 2024 that complete on or after the commencement date. For those, rollover, gift and business asset disposal relief are denied unless the claim includes a statement that the conditions in the rule are met, broadly that there was no purpose of avoiding the change. Cessation means an actual end of letting with no intention to resume; HMRC says it is not the date on which new bookings stop being taken.

What are the common mistakes?

Treating April 2025 as a cessation and claiming balancing allowances or business asset disposal relief on a later sale of a continuing holiday let.
Claiming the annual investment allowance on new furniture or fixtures bought after April 2025.
Continuing to deduct mortgage interest in full in an individual’s property computation.
Keeping an unequal income split between spouses without a Form 17 declaration.
Using property profits as relevant UK earnings for pension relief.

Looking ahead, the government announced at Budget 2025 separate property income rates of 22%, 42% and 47% for England, Wales and Northern Ireland from the tax year 2027 to 2028. Former holiday lets will fall within those rates in the same way as any other property income.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.