From 6 April 2025, the Furnished Holiday Let tax regime no longer exists. The rules that made short-term holiday property one of the most tax-advantaged property categories in the United Kingdom were abolished in a single legislative move, confirmed in the 2024 Spring Budget and enacted in Finance Act 2025.
If you own a property that previously qualified as a Furnished Holiday Let, every one of those advantages is now gone. Mortgage interest is no longer fully deductible. Capital allowances on furniture and fixtures can no longer be claimed on new purchases. Business Asset Disposal Relief, which allowed a reduced ten percent Capital Gains Tax rate on qualifying sales, is no longer available. Holiday let income no longer counts as relevant earnings for pension contribution purposes.
What remains is what applies to all other residential rental properties: standard property income tax treatment, the twenty percent finance cost credit under Section 24, Replacement of Domestic Items Relief for like-for-like furnishing replacements, and the usual allowable revenue expenses.
This guide walks through every change in detail, explains what is still available, covers the business rates and council tax position, and sets out the three structural responses that portfolio owners with holiday let properties are working through in 2026.
1. What the Furnished Holiday Let Regime Was
The Furnished Holiday Let tax regime, introduced in 1984, treated qualifying short-term holiday accommodation as a trade rather than as passive property income. To qualify, a property had to meet three letting tests in each tax year:
Availability test: The property had to be available for commercial letting to the public for at least 210 days per year.
Letting test: The property had to actually be let commercially for at least 105 days per year.
Pattern of occupation test: The property could not be let for periods of longer than 31 days to the same person for more than 155 days in the year.
Properties that met all three tests were treated as running a trade for certain tax purposes. That treatment came with five significant advantages: full mortgage interest deductibility, capital allowances on furniture and fixtures, Business Asset Disposal Relief on disposal, other Capital Gains Tax reliefs including roll-over and gift hold-over relief, and pension contribution eligibility using the holiday let profits as relevant earnings.
2. The Abolition: What Changed and When
The abolition was announced in the March 2024 Spring Budget by Jeremy Hunt, confirmed by the incoming Labour government in July 2024, and legislated in Finance Act 2025. The GOV.UK policy paper on the Furnished Holiday Lettings Tax Regime Abolition sets out the full detail.
The key effective dates:
6 April 2025: Abolition takes effect for income tax and Capital Gains Tax purposes for individual landlords and trusts.
1 April 2025: Abolition takes effect for corporation tax purposes for companies.
From those dates, all income and gains from what were previously Furnished Holiday Let properties are treated as standard residential property income and standard residential property gains. There is no separate category, no separate reporting, and no special treatment remaining.
Anti-forestalling provisions apply from 6 March 2024, the date of the Spring Budget announcement. Contracts exchanged on or after that date but completing after the abolition dates cannot benefit from roll-over relief or gift hold-over relief where the transfer is between connected persons.
3. Mortgage Interest Relief: The Full Deduction Is Gone
This is the change with the largest ongoing annual cost for most holiday let owners who carry a mortgage.
Under the old Furnished Holiday Let regime, mortgage interest was treated as a fully deductible business expense. A holiday let owner with rental income of £20,000 and mortgage interest of £10,000 was taxed on a profit of £10,000.
From 6 April 2025, the same owner is taxed on a gross profit of £20,000, and receives instead a twenty percent tax credit on the £10,000 of finance costs. The credit is worth £2,000, reducing the tax bill rather than the profit. For a basic-rate taxpayer, the practical impact is broadly neutral. For a higher-rate taxpayer, it is a permanent increase in the annual tax cost.
This is the Section 24 restriction that has applied to standard residential landlords since April 2020. Holiday let owners now sit under the same rules.
The cost by tax rate, on £10,000 of mortgage interest:
| Tax band | Old relief (full deduction) | New relief (20% credit) | Annual extra cost |
| Basic rate (20%) | £2,000 | £2,000 | £0 |
| Higher rate (40%) | £4,000 | £2,000 | £2,000 |
| Additional rate (45%) | £4,500 | £2,000 | £2,500 |
The phantom income problem that affects standard residential landlords also now applies to holiday let owners. Because mortgage interest is no longer deducted before calculating the taxable figure, the income reported to HM Revenue and Customs is inflated. This can push owners into higher tax bands, into the Child Benefit high-income charge zone above £60,000, and into the personal allowance taper above £100,000.
4. Capital Allowances: Abolished for New Expenditure
Under the Furnished Holiday Let regime, capital allowances could be claimed on the cost of fixtures, furniture, fittings, and equipment. Claims were made in full in the year of purchase using the Annual Investment Allowance.
From 6 April 2025, capital allowances on new expenditure are no longer available for individually owned holiday let properties. The replacement is Replacement of Domestic Items Relief, which is the same relief available to standard residential landlords.
What Replacement of Domestic Items Relief covers: Moveable furniture, furnishings, household appliances, and kitchenware, where the item being purchased replaces an existing one with a broadly equivalent replacement.
What it does not cover: Initial purchases. Upgrades where the replacement is a superior item. Fixtures and built-in installations.
Existing capital allowance pools: Where a holiday let owner had an existing pool of capital allowances carried forward from before April 2025, those pools can continue to be written down using the standard writing-down allowance rates. No new expenditure can enter the pool from April 2025, but the pre-existing pool is not lost.
5. Capital Gains Tax: The Reliefs That No Longer Apply
Business Asset Disposal Relief: Under the old regime, qualifying owners could access Business Asset Disposal Relief on disposal, giving a ten percent Capital Gains Tax rate on gains up to the lifetime allowance, compared to the standard residential property rate of twenty-four percent for higher-rate taxpayers.
From 6 April 2025, Business Asset Disposal Relief is no longer available on the disposal of what were previously Furnished Holiday Let properties. Sales after that date are subject to standard residential Capital Gains Tax rates: eighteen percent for basic-rate taxpayers, twenty-four percent for higher-rate taxpayers.
Roll-over relief: Where a Furnished Holiday Let owner sold a qualifying property and reinvested the proceeds in another qualifying business asset, Capital Gains Tax could be deferred through roll-over relief. This is no longer available from 6 April 2025.
Gift hold-over relief: A Furnished Holiday Let property could be gifted to a family member with the Capital Gains Tax liability deferred. This relief no longer applies to former Furnished Holiday Let properties from 6 April 2025.
The residual window: Where a Furnished Holiday Let business ceased before 6 April 2025 and qualified for Business Asset Disposal Relief at that point, there is a three-year window from the date of cessation within which disposals can still potentially benefit from the relief. This requires professional advice to establish eligibility.
6. Pension Contributions: Holiday Let Income No Longer Counts
Under the Furnished Holiday Let regime, profits from holiday letting counted as relevant earnings for the purpose of calculating the maximum tax-advantaged pension contribution.
From 6 April 2025, holiday let income is property income, not trading income. It is no longer relevant earnings. It cannot be used to support pension contributions beyond whatever other earned income the owner has. For owners who had been using holiday let profits to fund significant pension contributions as part of their retirement planning, this is a structural change that needs to be addressed with a pension and tax adviser.
7. Profit Allocation Between Joint Owners: Flexibility Removed
Under the Furnished Holiday Let regime, married couples and civil partners who jointly owned a qualifying property could divide the profits between them in any proportion they agreed.
From 6 April 2025, this flexibility no longer exists. Joint holiday let income is treated under the standard property income rules. For married couples or civil partners, income must be split in line with the actual beneficial ownership unless a formal declaration of different beneficial interests has been made and filed with HM Revenue and Customs on Form 17.
8. What Is Still Claimable After Abolition
Allowable revenue expenses: Fully deductible against rental income. This includes letting agency fees, cleaning costs, utilities paid by the owner, insurance, repairs and maintenance on a like-for-like basis, accountancy fees, advertising costs, and consumables. The full list is set out in the HMRC Property Income Manual.
Replacement of Domestic Items Relief: Covers the cost of replacing moveable furniture, furnishings, appliances, and kitchenware with broadly equivalent replacements.
Finance costs as a twenty percent credit: The Section 24 twenty percent tax credit on qualifying mortgage interest and other finance costs.
Existing capital allowance pool write-down: Pre-April 2025 capital allowance pools can continue to claim writing-down allowances. No new expenditure enters the pool.
Carried-forward losses: Losses carried forward within the old Furnished Holiday Let business from years before abolition can now be set against general property income from 2025/26 onwards. They are no longer ringfenced within the holiday let category.
Business rates and Small Business Rate Relief: These continue to apply where the property meets the day-count thresholds.
9. Business Rates and Council Tax: Separate Rules Still Apply
The abolition of the Furnished Holiday Let tax regime did not change the rules that determine whether a holiday let property is assessed for business rates or council tax. Those rules operate independently and remain in force.
In England, a self-catering property is assessed for business rates rather than council tax if it meets both of the following conditions over a twelve-month period:
- Available for short-term letting: At least 140 days per year
- Actually let: At least 70 days in the previous twelve months on short-term stays of 28 days or less
If a property fails either test, it falls back into council tax. In England, local authorities can charge a second home council tax premium of up to 100 percent on properties that do not qualify for business rates. From 1 April 2025, several councils including Cornwall implemented the full 100 percent premium.
Small Business Rate Relief: Where a property qualifies for business rates and has a rateable value at or below £12,000, the full business rates bill is reduced to zero. For rateable values between £12,001 and £15,000, relief tapers from 100 percent down to zero.
Owners should confirm with their local authority which regime currently applies to their property and whether they are meeting the day-count thresholds.
Wales: The thresholds are more demanding. Properties must be available for at least 252 nights per year and actually let for at least 182 nights. Welsh councils can apply a second home council tax premium of up to 300 percent.
10. How Income Is Now Reported
From the 2025/26 tax year onwards, income from former Furnished Holiday Let properties is reported as standard property income in the self-assessment return. All holiday let rental income goes into the United Kingdom Property pages (SA105 supplementary pages) of the self-assessment return.
There is no longer a separate category distinguishing short-term holiday letting from long-term residential letting for income tax purposes. All property income is pooled.
Making Tax Digital for Income Tax became mandatory from 6 April 2026 for sole traders and landlords with gross income above £50,000. If total rental income across all properties exceeds this threshold, quarterly digital submissions are required through HM Revenue and Customs-recognised software, with a final declaration by 31 January.
11. Three Structural Responses for Holiday Let Owners in 2026
Response 1: Continue operating under the new rules with adjusted cash flow
For owners who are basic-rate taxpayers, own the property without a mortgage, or hold the property in a limited company, the practical impact of abolition is limited. The primary change is the loss of capital allowances on new furnishing purchases, and the loss of Business Asset Disposal Relief on eventual sale.
Response 2: Incorporate into a limited company
A limited company is not subject to the mortgage interest restriction. It deducts finance costs in full as a business expense and pays corporation tax on net profit at nineteen percent on profits below £50,000 and twenty-five percent above £250,000.
The same transfer costs apply as for standard residential properties: Stamp Duty Land Tax at the five percent additional dwellings rate on the market value at transfer, and potentially Capital Gains Tax on accumulated gains since purchase. The break-even calculation depends on the size of the annual Section 24 cost against the one-off transfer cost, spread over the expected remaining hold period.
Response 3: Sell while the Capital Gains Tax position is still manageable
Some owners who were planning to sell within three to five years have brought that timeline forward. Under the old regime, a sale could be structured to use Business Asset Disposal Relief and pay ten percent Capital Gains Tax on the gain. From 6 April 2025, the rate for higher-rate owners is twenty-four percent. Running the numbers on the current tax cost compared to the net proceeds from a sale, after Capital Gains Tax at twenty-four percent and any applicable Annual Exempt Amount, is a useful exercise before deciding whether to hold or exit.
Frequently Asked Questions
For income tax and Capital Gains Tax purposes, the regime was abolished from 6 April 2025. For corporation tax purposes, abolition took effect from 1 April 2025. The change was announced in the Spring Budget of March 2024 and legislated in Finance Act 2025.
Yes, but not in full. You now receive a twenty percent tax credit on qualifying finance costs under the Section 24 restriction. For basic-rate taxpayers, the practical impact is broadly neutral. For higher-rate and additional-rate taxpayers, the annual cost increases.
Replacement of Domestic Items Relief. This allows a deduction for the cost of replacing moveable furniture, furnishings, appliances, and kitchenware with broadly equivalent items. It does not cover initial purchases or material upgrades.
Not unless you sold, or your qualifying business ceased, before 6 April 2025. Sales after that date are subject to standard residential Capital Gains Tax rates: eighteen percent for basic-rate taxpayers and twenty-four percent for higher-rate taxpayers.
No. Holiday let income is now property income, not trading income, and no longer counts as relevant earnings for pension contribution purposes.
Yes, from 2025/26 onwards. Losses from what were previously holiday let properties can now offset profits from other residential lettings in the same property business, and vice versa.
No. Income must now be split in line with beneficial ownership. For married couples and civil partners who want to divide income differently, a formal declaration and Form 17 submission to HM Revenue and Customs is required.
No. Business rates eligibility is determined by separate rules that continue to apply. In England, the tests are 140 days available for short-term letting and 70 days actually let in the previous twelve months. Many qualifying properties remain eligible for Small Business Rate Relief, which can eliminate the bill entirely for properties with a rateable value below £12,000.
Anti-forestalling provisions introduced from 6 March 2024 prevent owners from using contract arrangements to lock in the old Capital Gains Tax reliefs. Where a contract was exchanged on or after that date and the transfer completes after the abolition date, roll-over relief and gift hold-over relief between connected persons are denied.
Published May 2026. Last reviewed May 2026. For information only and not tax advice. The abolition of the Furnished Holiday Let regime is now enacted law. Verify the current position at GOV.UK and speak with a qualified tax adviser before making any structural decision regarding your holiday let properties.
