Furnished Holiday Lettings: end of the regime
How the abolition of FHL status from April 2025 affects UK holiday-let owners and what to do now.
The Furnished Holiday Lettings (FHL) regime ended on 6 April 2025 for income tax and 1 April 2025 for corporation tax. UK landlords with cottages, beach houses and short-let flats no longer enjoy the favourable treatment that has set FHL apart from ordinary rental property since the 1980s. This guide explains what is lost, the transitional rules, and the planning steps to take during the 2025-26 tax year.
What FHL status used to give
FHL income was treated like a trade for several specific purposes, despite being property income for everything else.
| Benefit | FHL position before April 2025 | Other lettings |
|---|---|---|
| Capital allowances on furniture and fittings | Yes | No (only Replacement of Domestic Items) |
| Mortgage interest fully deductible | Yes | Restricted to 20% basic-rate credit |
| Business Asset Disposal Relief on sale | Yes (10% CGT) | No (28% CGT for higher-rate) |
| Gift Hold-Over Relief | Yes | No |
| Pensionable earnings | Yes | No |
What changes from April 2025
After abolition, FHL income becomes ordinary property income subject to all the standard restrictions.
- Mortgage interest moves to a 20% tax credit rather than full deduction
- New capital expenditure no longer qualifies for AIA or writing-down allowances
- Replacement of Domestic Items relief replaces capital allowances for furniture
- CGT on sale rises from 10% (BADR) to 18% / 24% rates
- Profits stop counting as relevant earnings for pension contributions
- Spouses must split income and gains in legal ownership shares, not freely
Transitional rules
HMRC has confirmed several softening provisions to help landlords through the change.
| Item | Transitional treatment |
|---|---|
| Existing capital allowance pools | Continue to receive WDA at 18%/6% |
| New capital expenditure post-April 2025 | No allowances |
| Brought-forward FHL losses | Carried forward against general rental profits |
| Pension contributions | FHL profits to 5 April 2025 still relevant earnings |
| BADR on sale within 3 years of cessation | Available if other conditions met |
Planning for 2025-26
A handful of practical steps can soften the financial blow of losing FHL status.
- Bring capital expenditure forward into the 2024-25 tax year where possible
- Consider incorporation if mortgage interest restriction is the binding constraint
- Review ownership splits between spouses ahead of April 2025
- Reassess the 4-day vs 31-day letting tests for the final FHL year
- Review VAT registration if your turnover crosses £90,000
- Update your bookkeeping software to reclassify FHL accounts to ordinary lettings
Final thoughts
The end of the FHL regime is a significant tax change that warrants reviewing your structure and finance arrangements. Pair this with our capital allowances for UK businesses article, the self-assessment tax return guide, and the VAT registration threshold explainer. Verify the latest position on the HMRC FHL abolition technical note . See pricing for property-friendly bookkeeping.