For over 40 years, owners of qualifying furnished holiday lets enjoyed a set of tax advantages that put them closer to businesses than to ordinary residential landlords. That era came to an end on 6 April 2025. From that date, income from short-term holiday letting — whether through Airbnb, direct bookings, or any other channel — is taxed as standard UK property income under the same rules that apply to long-term residential landlords.
The change was first announced by then Chancellor Jeremy Hunt at the Spring Budget in March 2024, and was subsequently confirmed and carried forward by the incoming Labour government. There is no transitional period for income tax purposes and no grandfathering for existing properties.
The 2025/26 tax return, due 31 January 2027, is the first return filed entirely under the post-FHL rules. For many holiday let owners, particularly those with mortgage debt on their properties, the tax bill for 2025/26 will be materially higher than 2024/25. If you haven't already reviewed your position, now is the time.
What the FHL regime was
Before 6 April 2025, a residential property qualified as a Furnished Holiday Let if it met three occupancy conditions:
- Availability condition — available for commercial letting to the public for at least 210 days per year
- Letting condition — actually let commercially for at least 105 days per year
- Pattern of occupation condition — no single letting exceeded 31 consecutive days for a significant portion of the letting period
Properties meeting these conditions were treated as a trading business, not an investment property, and received significant tax advantages not available to ordinary residential landlords.
What has changed — the full picture
| Tax treatment | Before 6 April 2025 (FHL) | From 6 April 2025 (standard) |
|---|---|---|
| Mortgage interest | Fully deductible from rental income | Section 24 applies — 20% tax credit only |
| Capital allowances | Annual Investment Allowance & capital allowances on furniture, fixtures and fittings | No new capital allowances — Replacement of Domestic Items Relief only (like-for-like) |
| CGT — Business Asset Disposal Relief | Available on sale — 10% CGT rate | No longer available — standard 18%/24% residential CGT rates apply |
| CGT — Rollover relief | Available where proceeds reinvested in another qualifying asset | No longer available |
| CGT — Gift relief | Available on gifts of FHL properties | No longer available |
| Pension contributions | FHL profits counted as relevant earnings — could fund pension contributions | Holiday let profits no longer count as relevant earnings |
| Losses | FHL losses could be offset against other FHL income in same year | Losses form part of property business — offset against other property income only |
| Income splitting | Profits could be split between co-owners in any proportion | Standard property rules apply — usually split in proportion to ownership |
The biggest change — mortgage interest restriction
For most holiday let owners with a mortgage, this is the change that hurts most. Under Section 24, mortgage interest is no longer deductible as a business expense. Instead, you receive a 20% tax credit on mortgage interest costs.
This is the same restriction that was phased in for residential landlords between 2017 and 2020 — but holiday let owners were previously exempt from it entirely. That exemption is now gone.
Worked example — higher rate taxpayer
For a 40% higher rate landlord with £30,000 of annual mortgage interest, that is a £6,000 a year increase in net tax compared with the old FHL position.
Limited companies are not in scope of Section 24, so company-held holiday lets still get full mortgage interest deduction inside the company. Whether incorporating is worthwhile depends on a range of factors — it is not a straightforward decision and should be reviewed carefully with an accountant before any action is taken.
Capital allowances — what you can and can't claim
Under the old FHL regime, owners could claim the Annual Investment Allowance and capital allowances on furniture, fixtures, fittings and equipment. From 6 April 2025 you cannot bring new qualifying expenditure (new fridge, new sofa, new heat pump, new fitted carpets) into a capital allowances pool for a holiday let.
However, the situation for existing pools is slightly different. There are some specific transitional rules available: continuation of ongoing capital allowances pools of historical expenditure — however, any new expenditure incurred on or after the operative date must be considered under the property business rules.
Going forward, Replacement of Domestic Items Relief (RDIR) applies instead. This allows you to deduct the cost of replacing an existing domestic item (sofa, bed, white goods) on a like-for-like basis — but it does not cover initial fit-out, improvements to existing items, or the cost of items above a like-for-like replacement standard.
Capital Gains Tax — significant loss of reliefs
FHL properties previously enjoyed a suite of CGT reliefs that treated them like business assets rather than investment properties. All of these are now gone:
- Business Asset Disposal Relief (BADR) — previously provided a 10% CGT rate on gains from FHL disposals. From 6 April 2025, the standard residential CGT rates of 18% (basic rate) and 24% (higher rate) apply instead. Note that CGT rates on residential property did not increase in the Autumn 2024 Budget — the top rate was reduced from 28% to 24% in March 2024 and remains there.
- Rollover relief — no longer available for reinvesting proceeds into a new property
- Gift relief — no longer available when gifting a former FHL to family members
The tax point for CGT is exchange of contracts. If you exchanged on or before 5 April 2025 (even with completion after), the old rules apply to that disposal. Get the contract date confirmed before filing. If you are in any doubt about the applicable rules for a disposal, seek advice before submitting your return.
Pension contributions
One of the less-discussed but significant changes is the impact on pension planning. Under the old regime, FHL profits counted as "relevant earnings" for pension purposes, allowing holiday let owners to make tax-relieved pension contributions up to 100% of those profits (subject to the annual allowance). Profits from FHLs counting as relevant earnings for pension purposes meant tax-advantaged pension contributions could be made.
From 6 April 2025, holiday let profits are property income — not relevant earnings — and cannot be used to support pension contributions in the same way. If you were relying on FHL income to fund pension contributions, your maximum pension input may have reduced significantly. This should be reviewed urgently if you have an ongoing pension contribution strategy based on FHL income.
Anti-forestalling rules
There is also an anti-forestalling rule that applies from 6 March 2024, which prevents the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. If you did any pre-abolition restructuring, get advice on whether the anti-forestalling provisions catch your transaction.
What should you do now?
The immediate priority for most holiday let owners is understanding the impact on your 2025/26 self-assessment return, due 31 January 2027. Beyond that, some owners will want to review their longer-term strategy.
- Review your 2025/26 rental income, mortgage interest and expenses — your taxable profit and tax bill will likely be higher than last year
- Check whether Replacement of Domestic Items Relief applies to any expenditure you've made on your property since 6 April 2025
- If you have an existing capital allowances pool from pre-April 2025 expenditure, ensure this is carried forward correctly in your return
- If you were making pension contributions funded by FHL profits, review your contribution strategy with an adviser
- If you are considering selling your holiday let, understand the CGT position under the new rules before proceeding
- If you hold your holiday let personally and have significant mortgage debt, consider whether a different ownership structure might be worth exploring — but take advice before making any changes
- If you have multiple properties, make sure losses from one property are correctly pooled with your wider property business
Own a holiday let in Cheshire or further afield?
We're helping clients across Macclesfield and Bollington understand the impact on their 2025/26 tax returns and plan their position for the years ahead. If you'd like us to review your situation, book a free call.
Book a free 30-minute call →This article is for general guidance only and does not constitute professional tax advice. The rules described apply from 6 April 2025 for income tax and CGT, and from 1 April 2025 for corporation tax. Individual circumstances vary significantly — please contact us to discuss your specific position. JAC Accountancy Solutions Limited is regulated by ICAEW (Membership No. 8650147).