If you own a holiday let in the UK, the furnished holiday let tax rules you may have relied on for years no longer exist. The furnished holiday lettings (FHL) regime was abolished from 6 April 2025, and holiday lets are now taxed under the ordinary property income rules that apply to other landlords. That single change affects how your rental income is taxed, what you can claim for mortgage interest, how losses work and which reliefs are available when you sell. This guide explains what changed, what stayed the same and what holiday let owners should review now.
What the Old Furnished Holiday Let Regime Offered
Under the old rules, a property that met the FHL conditions was treated more like a trading business than a passive investment. To qualify, the property generally had to be available for letting for at least 210 days a year, actually let for at least 105 days, and not occupied by the same guests for longer periods beyond the limits HMRC set. Owners who qualified enjoyed several valuable advantages.
Mortgage interest could be deducted in full from rental income, unlike standard buy to lets. Profits counted as relevant earnings for pension contributions. Owners could claim capital allowances on furniture, fixtures and equipment, and when they sold, reliefs designed for traders — including Business Asset Disposal Relief, rollover relief and hold-over relief for gifts — could reduce the capital gains tax bill. If you are new to letting altogether, our guide to becoming a landlord in the UK covers the wider legal and tax responsibilities that apply to every property owner.
The Furnished Holiday Let Tax Rules After April 2025
The furnished holiday let tax rules were swept away as part of the government’s plan to simplify property taxation and remove the advantage holiday lets held over long-term rentals. From 6 April 2025 for individuals (and 1 April 2025 for companies), there is no longer a separate FHL category. Your holiday let is simply a property business, taxed in the same way as a standard residential letting.
The occupancy tests no longer matter for tax purposes. Whether your cottage is let for 100 nights or 250 nights, the income is property income, reported through Self Assessment in the same way as rent from a long-term tenant. The detailed rules on working out rental income are set out in HMRC’s guidance on rental income, and the same principles now cover holiday accommodation.
How Your Holiday Let Income Is Taxed Now
Rental profits are taxed at your marginal income tax rate, exactly as with any other letting. You can still deduct day-to-day running costs — cleaning, utilities, insurance, letting agent fees, repairs and maintenance — before working out your profit. Our guide to allowable expenses for landlords walks through what can and cannot be claimed, and it now applies to holiday let owners in full.
One practical consequence is pooling. Because your holiday let now sits inside your wider property business, its results are combined with your other UK property income rather than ring-fenced. For owners with both holiday lets and long-term rentals, that can simplify reporting, but it also means a strong year in one property can be offset — or increased — by results elsewhere. Keeping clean records for each property remains essential, particularly as Making Tax Digital for Income Tax begins to phase in for landlords.
Mortgage Interest and the Finance Cost Restriction
The most expensive change for many owners is mortgage interest. Under the FHL regime, interest was a fully deductible expense. Now, holiday lets fall under the same finance cost restriction that standard landlords have faced for years: you cannot deduct mortgage interest from rental income, and instead receive a tax reduction worth 20% of the interest cost.
For basic-rate taxpayers the effect may be modest, but higher-rate taxpayers will feel a real squeeze, and the way profits are calculated before the credit can also push income into a higher band. Our explainer on buy to let mortgage interest tax relief sets out how the restriction works in practice. Owners with larger mortgages should model the numbers carefully, because a holiday let that was comfortably profitable under the old rules may now produce a much smaller after-tax return.
Capital Allowances, Furniture and Fittings
Capital allowances were another casualty of abolition. Holiday let owners could previously claim allowances on furniture, white goods and equipment, building a pool of relief over time. New expenditure no longer qualifies for capital allowances under the property rules.
Instead, the replacement of domestic items relief may help when you replace furniture, furnishings and appliances in a let property: the cost of a like-for-like replacement can generally be deducted, although the initial cost of furnishing a property for the first time cannot. Owners who had an existing capital allowances pool when the regime ended should take advice on how their balance is treated, because the transitional position depends on individual circumstances. Our guide to landlord tax deductions covers the main reliefs landlords rely on day to day.
Capital Gains When You Sell Your Holiday Let
Selling a holiday let also looks different now. The trading-style reliefs that made FHLs so attractive — Business Asset Disposal Relief with its lower rate of capital gains tax, rollover relief when reinvesting, and hold-over relief on gifts — are no longer available for disposals simply because a property was once a holiday let. Transitional anti-forestalling rules were introduced to stop owners rushing through arrangements before abolition purely to bank the old reliefs.
A sale is therefore taxed under the normal residential property capital gains rules, with the higher rates that apply to residential property and the usual reporting deadline for UK residential disposals. If you are weighing up a sale, our guide to capital gains tax on a second property explains how the calculation works and what costs can be taken into account.
Losses and Carrying Them Forward
Loss rules changed too. Under the old regime, FHL losses could only be set against future profits from the same furnished holiday let business. Following abolition, losses from your former holiday let can be carried forward and set against future profits from your wider UK property business, which is more flexible for owners who also hold long-term rentals.
The position for losses that arose before April 2025 has transitional rules, so check how any historic FHL losses can be used rather than assuming they have vanished. Accurate records of past returns will make this far easier to establish, and it is one of the first things an accountant will ask about when reviewing your position.
What Holiday Let Owners Should Do Now
Start by recalculating. Work out your expected profit under the new rules, including the finance cost restriction, and compare it with previous years so there are no surprises when your tax bill arrives. Review your pricing and occupancy strategy in light of the new numbers, and keep the key dates in our guide to the UK tax year in mind when planning payments on account.
Second, review your structure and your records. Some owners will conclude that a holiday let still works well as part of a broader portfolio; others may reconsider how they hold or use the property. Either way, decisions about incorporation, ownership shares or selling have long-term tax consequences and deserve proper advice rather than guesswork. Finally, keep documentation tidy: booking records, expense receipts and mortgage statements are the evidence behind every figure on your return.
The end of the furnished holiday let regime removed generous reliefs, but holiday letting itself remains a legitimate and potentially rewarding activity. Owners who understand the new furnished holiday let tax rules, plan for the finance cost restriction and keep their records in order will be far better placed than those who file the old way and hope for the best.
