Furnished Holiday Lettings (FHL) Abolition 2025: What Landlords Must Do

FHL abolition 2025: the background landlords need to know

The furnished holiday lettings regime gave qualifying short-term let properties a package of tax advantages not available to standard buy-to-let landlords. These advantages included full capital allowance claims on furniture and equipment, the ability to use FHL profits as relevant earnings for pension contributions, access to business asset disposal relief (formerly entrepreneurs' relief) on sale, and unrestricted mortgage interest deduction — the Section 24 restriction did not apply.

To qualify, a property had to be available for letting for at least 210 days per year, actually let for at least 105 days, and no single letting could exceed 31 consecutive days. These conditions distinguished FHLs from long-term residential lets in HMRC's view.

At the Spring Budget on 6 March 2024, the Government announced the abolition of the FHL regime. The policy rationale given was that the favourable tax treatment was distorting the housing market, particularly in tourist areas where landlords converted long-term rental properties to short-term holiday lets to benefit from the tax advantages. HMRC's policy paper published on 6 March 2024 confirmed the effective date as 6 April 2025 for Income Tax and 1 April 2025 for Corporation Tax.

Anti-forestalling rules took effect from 6 March 2024 to prevent landlords from accelerating transactions — such as selling a holiday let and claiming business asset disposal relief — before the abolition date.

Capital allowances: what changes and what does not

Under the FHL regime, landlords could claim plant and machinery capital allowances on items such as furniture, appliances, boilers, and fitted kitchens. This was a significant tax advantage: for a higher-rate taxpayer, a £20,000 allowance claim saved £8,000 in Income Tax.

From 6 April 2025:

• New capital allowance claims are not available. Holiday let income is now treated as ordinary residential property income. The replacement of domestic items relief — which covers like-for-like replacement of existing furnishings — is available, but it is far narrower than capital allowances.
• Existing pool balances.If you had an unrelieved capital allowances pool at 5 April 2025, transitional rules apply. HMRC's published guidance sets out how unrelieved pools are treated going forward. You should review the position with an accountant, particularly if you made significant capital expenditure in 2023/24 or 2024/25.
• Annual investment allowance (AIA). No longer available for holiday let expenditure from 6 April 2025. AIA was particularly valuable for landlords fitting out new holiday lets at scale.

The practical implication: if you were planning significant capital expenditure on a holiday let property — new kitchen, heating system, or furniture — you needed to complete and put the asset in use before 6 April 2025 to access capital allowances. Expenditure after that date is not eligible for capital allowance treatment.

Section 24 now applies to your holiday let

One of the most significant financial impacts of FHL abolition is the application of the Section 24 mortgage interest restriction. Before 6 April 2025, holiday let landlords with a mortgage could deduct the full interest as a business expense against their FHL income. That position has ended.

From 6 April 2025, holiday let mortgage interest is subject to the same restriction as buy-to-let residential landlords:

• Mortgage interest is excluded from allowable expenses and recorded separately as a finance cost.
• You receive a 20% basic-rate tax credit on the full amount of qualifying finance costs.
• Higher-rate taxpayers effectively lose 20 percentage points of relief — paying 40% tax on the profit that mortgage interest used to shelter, then receiving only a 20% credit back.

For a highly leveraged holiday let landlord in the 40% tax band, this represents a substantial increase in effective tax rate. Our guide to Section 24 mortgage interest covers worked examples showing the before-and-after tax impact, which now apply equally to holiday let landlords.

FHL loss relief: transitional rules explained

Under the old regime, FHL losses could only be carried forward and set against future FHL profits. They could not be offset against other property income. This restriction was a deliberate feature of the FHL ring-fence.

From 6 April 2025, the FHL ring-fence is abolished. Unrelieved FHL losses carried forward from 2024/25 and earlier years are reclassified as ordinary UK property losses. They may then be set against future UK property income profits — including income from residential buy-to-let properties — in the normal way under the property income loss rules.

This reclassification is, for most landlords, a net positive: a loss that was previously stranded in the FHL ring-fence can now be used against a broader income base. However, the mechanism for claiming the carried-forward loss on your 2025/26 tax return requires careful handling. You should ensure your accountant is aware of any FHL losses brought forward from earlier years.

Losses that arose specifically from capital allowance claims before 6 April 2025 may have particular transitional treatment. The starting point for any query is HMRC's abolition guidance, though professional advice is strongly recommended given the complexity.

Pension contributions: an overlooked impact of FHL abolition

One of the least-discussed consequences of FHL abolition is its effect on pension contribution eligibility. Under the old regime, net FHL profit counted as relevant UK earnings — the same category as self-employment income. This meant a holiday let landlord with £40,000 net FHL profit could contribute up to £40,000 to a pension and receive full tax relief on that contribution.

From 6 April 2025, FHL income is reclassified as investment income (property income), not trading income. Investment income does not count as relevant UK earnings for pension purposes. Landlords who relied on FHL profits to support large annual pension contributions — particularly those using Self-Invested Personal Pensions (SIPPs) — face a reduction in their allowable pension input unless they have other qualifying earned income.

If this applies to your situation, you should review your pension strategy with an independent financial adviser. The change affects the 2025/26 tax year (6 April 2025 onwards); contributions made in 2024/25 based on FHL profits are not affected retrospectively.

Business asset disposal relief: the sale implications

FHL properties that met the qualifying conditions were eligible for business asset disposal relief (BADR), giving a 10% CGT rate on gains up to the lifetime limit (£1 million). This was a major advantage over standard residential property sales, which attract 18% or 24% CGT (current rates as at April 2026).

From 6 April 2025, holiday let properties can no longer qualify for BADR. Sales of former FHL properties from that date are subject to the same CGT rates as any other residential property disposal.

Anti-forestalling rules introduced from 6 March 2024 prevent landlords from relying on conditional contracts entered into after that date to access the 10% BADR rate. Sales exchanged before 6 March 2024 and completing after that date may still qualify under certain conditions — this is a complex area and professional advice is essential.

For landlords considering selling a holiday let property, our guide to stamp duty for landlords in 2026 covers the SDLT position on property transactions, and our MTD for landlords guide explains how former FHL income feeds into your ongoing quarterly submissions.

What holiday let landlords should do now

If you own a furnished holiday let, the following actions are relevant for your 2025/26 tax return and ongoing compliance.

1. 1

   Reclassify your income and expenses

   From 6 April 2025, your holiday let income and expenses are reported on SA105 under ordinary UK property income rules. Mortgage interest must move from “expenses” to “residential finance costs” (SA105 Box 44). Capital items previously categorised for capital allowances should be reviewed under replacement of domestic items relief criteria instead.

2. 2

   Identify any carried-forward FHL losses

   Check your 2024/25 tax return for any FHL losses brought forward. These are now available against general property income. Ensure your accountant or tax software flags them correctly on the 2025/26 return.

3. 3

   Review your pension contributions

   If you relied on FHL profits as relevant earnings to support pension contributions, speak to an independent financial adviser. Your allowable pension input for 2025/26 may be lower unless you have other qualifying earned income.

4. 4

   Check your MTD obligations

   Your holiday let income now counts towards your total qualifying income for MTD for Income Tax purposes. If your combined rental and other self-assessment income exceeds £50,000, you must comply with MTD from 6 April 2026. Use our MTD readiness checker to confirm your position.

Frequently asked questions