For years, a furnished holiday let — the tax status behind most holiday accommodation and serviced accommodation — was one of the most tax-efficient ways to own property. It sat in its own regime, taxed more like a trading business than a rental, and the perks were real: full relief on mortgage interest, capital allowances on the furniture and fittings, and a 10% capital gains tax rate on sale. That regime ended on 6 April 2025.
Since then, holiday lets are taxed as an ordinary property business, the same as a standard buy-to-let. If you own one, or you are thinking of buying one, the numbers have changed in ways that are easy to miss until the tax bill lands. This is what went, what it costs, and what you can still do about it.
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What the FHL regime was, and what ended on 6 April 2025
A furnished holiday let was a property let out on a short-term basis that met HMRC’s occupancy conditions, broadly available to let for at least 210 days a year and actually let for at least 105. If it qualified, it was treated as a trade for several tax purposes rather than as a normal rental, and that unlocked a set of benefits ordinary landlords never had.
From 6 April 2025 for income tax and capital gains tax, and 1 April 2025 for companies, that regime was abolished. Holiday lets did not disappear as a business, but the special tax status did. They now fall inside your ordinary UK property business and follow exactly the same rules as any other let property. The four benefits that mattered most, finance cost relief, capital gains reliefs, capital allowances, and pension-relevant earnings, all went at once.
Mortgage interest: from full deduction to a 20% credit
This is the change that hits hardest, and it is the same restriction that has applied to ordinary landlords since Section 24 came in. Under the old regime, you deducted your full mortgage interest from your holiday let income before working out the tax. Now you cannot. Instead, you are taxed on your rental profit before interest, and then given a credit worth 20% of the interest.
For a higher-rate taxpayer, that is a real increase in tax on the same income. Here is a holiday let with £30,000 of income, £8,000 of running costs, and £10,000 of mortgage interest, owned by a higher-rate taxpayer.
| Old FHL treatment | Now (property business) | |
|---|---|---|
| Income | £30,000 | £30,000 |
| Running costs | (£8,000) | (£8,000) |
| Mortgage interest | (£10,000) | not deducted |
| Taxable profit | £12,000 | £22,000 |
| Tax at 40% | £4,800 | £8,800 |
| Less 20% interest credit | — | (£2,000) |
| Tax due | £4,800 | £6,800 |
Same property, same rent, same costs. The tax bill is £2,000 higher every year, purely because of how the interest is now relieved. And as with Section 24, adding the full rent to your income can quietly push you into a higher tax band, or into the child benefit or personal allowance tapers, costing more again.
Capital gains tax: the reliefs you have lost
When you sell, the change is even bigger. Under the FHL regime a holiday let often qualified for Business Asset Disposal Relief, which taxed the gain at 10% up to a lifetime limit. It could also use rollover relief to defer a gain into a replacement business asset, and holdover relief on a gift. All three depended on the property being an FHL. That status is gone, so for disposals now the gain is taxed as a normal residential property gain, at 18% for any part within the basic-rate band and 24% above it.
On a £200,000 gain, that is the difference between roughly £20,000 of tax at the old 10% rate and around £48,000 at 24%. A £28,000 swing on a single sale.
There is one piece of good news on timing. If your holiday let business met the Business Asset Disposal Relief conditions up to the point it ceased, the normal rule still applies: you can sell a business asset within three years of the business ceasing and keep the 10% rate. In practice that gives a window, broadly up to three years from cessation, in which a former holiday let can still be sold at the old rate. If a sale is on the horizon, the timing genuinely matters, so it is worth checking the position before you market the property.
Thinking of selling a holiday let, or not sure how the new rules hit your numbers? Book a strategy call and we will work through your actual figures with you before you make a move.
Furniture and fittings: capital allowances are gone
Holiday lets used to claim capital allowances on furniture, white goods, and equipment, which gave a deduction against income when you kitted the place out. Ordinary let property cannot do this. From April 2025, new spending on furnishings no longer qualifies for capital allowances.
This matters far more than it sounds, because fitting out a holiday let is not cheap. A furniture pack for a three-bedroom property starts around £12,000 and climbs from there, and that is a basic specification. Under the old regime a large part of that cost came back to you as a deduction. Now, because it is the initial fit-out of a newly let property rather than the replacement of an existing item, none of it is relieved. Not against your income now, and not against the gain when you eventually sell. A recent client spent £15,000 on furniture packs and will not see a penny of tax relief on it, ever.
What you get instead is Replacement of Domestic Items Relief. That gives relief when you replace an existing item, a bed, a sofa, a fridge, with a like-for-like equivalent, but not on the initial cost of furnishing the property in the first place. It is narrower, and it changes how you should plan and time any refit. If you have an existing capital allowances pool from before the change, transitional rules let it continue to be written down, so that history is not lost, but nothing new goes into it.
Pensions and splitting profit with a spouse
Two quieter changes are worth knowing. First, FHL profits used to count as relevant earnings for pension contributions, which let some owners make larger tax-relieved pension payments. Holiday let income no longer counts, so if pension contributions were part of your plan, that basis has gone.
Second, couples who jointly owned an FHL could split the profit between them in whatever proportion suited them, rather than being tied to their ownership shares. That flexibility was an FHL feature. Now a jointly owned holiday let follows the normal rules for couples, which generally means a 50/50 split for spouses unless you hold the property in unequal shares and elect accordingly. If you were using an uneven split to keep income off a higher-rate spouse, that needs revisiting.
What still works, and what to do now
None of this means a holiday let is a bad investment. Short-term letting can still earn far more per night than a standard tenancy, and in the right location the income more than makes up for the loss of the tax perks. What has changed is that the tax no longer does any of the heavy lifting for you, so the property itself and the way you hold it have to stand on their own.
A few things are worth reviewing now. Whether holding through a company changes the interest position, since the 20% credit restriction applies to individuals, not companies. Whether the property is heading towards the VAT threshold, which catches serviced accommodation more often than owners expect. And whether the ownership split between you and a spouse still lands the income in the right place. Each of these is a decision that is far cheaper to get right in advance than to unpick after a tax return is filed.
If there is one lesson in all of this, it is to know every number before you commit. The purchase price, the furniture pack, the finance costs, the VAT position, and the tax on the way out. A holiday let can still be an excellent investment, but only once you have run the full picture, and you need to do that before you choose the strategy and the property to put it in, not after.
And if it is relevant to you, keep VAT and business rates on your radar too. Both can apply to short-stay holiday lets, and both are easy to overlook.
Frequently asked questions
When did the furnished holiday lettings tax regime end?
It was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for companies. From those dates, holiday lets are taxed as part of your ordinary property business.
Can I still deduct my mortgage interest on a holiday let?
Not in full. You are now taxed on your rental profit before interest and given a credit worth 20% of the interest, the same restriction ordinary landlords have had since Section 24. For higher-rate taxpayers this increases the tax on the same income.
Have I lost the 10% capital gains tax rate on my holiday let?
In most cases, yes. Business Asset Disposal Relief and the other FHL capital gains reliefs no longer apply, so a sale is taxed as a normal residential property gain at 18% or 24%. There is a limited transitional window in which a former FHL may still qualify, so timing a sale correctly matters.
Can I still claim for furniture in my holiday let?
Not through capital allowances on new spending. You can claim Replacement of Domestic Items Relief when you replace an existing item like-for-like, but not on the initial cost of furnishing the property. An existing capital allowances pool can continue to be written down under transitional rules.
Should I move my holiday let into a limited company now?
It depends. A company is not caught by the 20% interest restriction, which can help where borrowing is high, but transferring an existing property triggers stamp duty and potentially capital gains tax, and running a company has its own costs. It is a calculation worth doing on your specific numbers before deciding.
Does this apply to serviced accommodation and holiday accommodation too?
Yes. Serviced accommodation, holiday accommodation and furnished holiday let are used more or less interchangeably for short-stay let property, and any of them that qualified as a furnished holiday let is now taxed as part of your ordinary UK property business, since the FHL regime was abolished in April 2025.
