Quick answer
The furnished holiday lets regime was abolished from 6 April 2025. Holiday let income is now taxed under normal property rules, so landlords lose full mortgage interest relief, some capital allowances, and certain capital gains reliefs.
Updated October 2026 · Figures based on the 2026/27 tax year
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What the abolition means in practice
The furnished holiday let (FHL) regime was abolished from 6 April 2025. Before that date, a qualifying holiday let was treated as a trade for several tax purposes, which gave it advantages over ordinary rental property. From the 2025/26 tax year, income from a property that used to qualify is simply treated as part of your ordinary UK (or overseas) property business. That has three main effects. First, finance costs such as mortgage interest are no longer deducted in full from the profit. Instead, individuals receive a tax reduction at the basic rate of 20% — the same Section 24 restriction that already applies to ordinary buy-to-lets. Second, capital allowances on new spending on furniture and equipment are generally replaced by the replacement of domestic items relief for ordinary lettings, so check current HMRC guidance on what you can claim. Third, profits from the let are no longer treated as relevant earnings for pension contribution purposes.
There are capital gains tax consequences too. Reliefs that were available to qualifying FHLs, including Business Asset Disposal Relief and gift holdover relief, are no longer available for disposals after the change, subject to transitional rules. Sales are taxed under the standard residential property rules, with rates of 18% or 24% and the annual exempt amount. Anti-forestalling rules apply to some arrangements made before the change, so check how your own situation is treated. If you are thinking of selling or gifting a former FHL, take advice first, and see our guide to furnished holiday let changes after April 2025 for more background. HMRC sets out the detail in its guidance on the furnished holiday lettings tax regime abolition.
Worked example: the effect of the mortgage interest rule
This is an illustrative example. Alex, who lives in England, has a salary of £40,000 and a holiday let that brings in £30,000 a year, with £8,000 of running costs and £9,000 of mortgage interest. Profit before finance costs is £22,000.
| Old FHL rules | New rules from 2025/26 | |
|---|---|---|
| Property profit | £22,000 – £9,000 = £13,000 | £22,000 |
| Total income | £53,000 | £62,000 |
| Taxable after £12,570 allowance | £40,430 | £49,430 |
| Tax at 20% on first £37,700 | £7,540 | £7,540 |
| Tax at 40% on the rest | £2,730 x 40% = £1,092 | £11,730 x 40% = £4,692 |
| Tax before credit | £8,632 | £12,232 |
| Finance cost credit | nil | £9,000 x 20% = -£1,800 |
| Tax payable | £8,632 | £10,432 |
The extra cost is £1,800, which equals £9,000 x (40% – 20%). A higher-rate taxpayer loses the difference between their marginal rate and the 20% credit. A basic-rate taxpayer would see little or no difference.
Common mistakes
- Carrying on as though the FHL regime still applies and deducting mortgage interest in full.
- Forgetting that the property allowance of £1,000 is an alternative to deducting expenses, not an addition to them.
- Assuming the income counts for pension relief.
- Leaving old capital allowance pools unclaimed when they still exist.
- Missing that selling a former FHL may be a UK residential gain that must be reported and paid within 60 days of completion.
- Not checking whether the letting is now covered by the same rules as a normal rental, as explained in how landlords pay tax on rental income.
Practical checklist
- Separate rental income, running costs, finance costs and capital items in your records.
- Check which costs are repairs and which are improvements — our guide to repairs versus improvements helps.
- Work out whether the £1,000 property allowance or actual expenses gives the better result.
- Review whether owning through a company would suit you, but get advice before moving a property.
- If you list on a short-term platform, also read our guide to Airbnb hosts and Self Assessment.
- Review your cash flow, because the loss of the full interest deduction can raise your bill.
How SATR can help
Our qualified UK accountants can restate your lettings under the new rules and file your return online for a fixed fee from £199 + VAT. See our Self Assessment service for landlords.
This is general information, not personal tax advice.
Planning your next steps as an owner
Owners of former holiday lets usually fall into one of three groups. Some keep the property largely as it is and accept the new tax treatment. Others change how it is used, for example moving to longer lets, where the economics may be closer to a standard buy-to-let. A third group considers selling. Whichever applies, the practical starting point is the same: get an accurate picture of your profit, your finance costs and your other income, because the restriction on interest relief depends on all three. It is also worth thinking about how the let fits with your wider position, including pension contributions, since the income no longer counts as earnings for that purpose. If you hold the property jointly, income is normally split according to ownership, so each owner needs to report their own share. Comparing two or three realistic scenarios on paper, with your accountant, is far better than reacting to the bill after the year has ended.
Frequently asked questions
For more answers on deadlines and filing, browse our Self Assessment FAQs.
Can I still deduct running costs?
Yes. Ordinary allowable expenses such as cleaning, utilities and advertising remain deductible.
Is holiday let income still subject to Self Assessment?
Yes, it must be reported on your return.
Can I still claim capital allowances on furniture bought before April 2025?
Existing pools of capital allowances can generally continue to be written down, but new spending on furnishings is generally dealt with under replacement of domestic items relief for ordinary lets. Check current HMRC guidance for your circumstances.
Does holiday let income still count for National Insurance?
Rental income from property is not generally subject to Class 4 National Insurance unless the activity amounts to a trade. Check current HMRC guidance if you provide substantial services to guests.
What happens if I sell a former holiday let?
The gain is calculated under the normal capital gains tax rules. For UK residential property you must report and pay within 60 days of completion. Transitional rules may apply, so seek advice before selling.
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The Bottom Line
From 6 April 2025, furnished holiday lets are taxed like any other rental property: mortgage interest only attracts a 20% tax credit, capital allowances on new furnishings are largely gone, and the valuable capital gains reliefs no longer apply. The three actions that matter are restating your profit under the new rules, checking whether the £1,000 property allowance or actual expenses suits you better, and reviewing your cash flow — a higher-rate taxpayer with a mortgaged let can easily face a bill £1,800 or more higher, as the example above shows.
Our qualified UK accountants will restate your lettings, claim everything you are still entitled to and file your return for a fixed fee from £199 + VAT — order online now and leave the rest to us.
