Guide

FHL tax regime abolition - what's changed

Summary of the furnished holiday lettings tax regime abolition from April 2025, including the tax advantages removed, transitional arrangements, and what to do now.

Food, Drink & Hospitality UK-wide

The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025 for Income Tax and Capital Gains Tax (1 April 2025 for Corporation Tax). This guide summarises what's changed and what action you may need to take.

Tax advantages that no longer apply

From April 2025, these FHL-specific benefits are removed:

  • Full mortgage interest deduction: Now restricted to 20% tax credit for higher/additional rate taxpayers
  • Capital allowances: No longer available on furniture, equipment, or improvements - only Replacement of Domestic Items Relief
  • Pension contributions: FHL income doesn't count as 'relevant earnings'
  • Business Asset Disposal Relief: Standard residential CGT rates apply
  • Roll-over relief: No deferral when reinvesting in business assets
  • Gift relief: Transfers trigger immediate CGT

What stays the same

These aspects are unchanged:

  • Business rates eligibility (separate from tax regime)
  • Small Business Rate Relief availability
  • VAT treatment (standard-rated at 20%)
  • Allowable expenses for income tax (excluding mortgage interest restriction)

Transitional rules for existing FHL owners

Capital allowance pools

Pools created before 6 April 2025 continue to generate Writing Down Allowances (18% main pool, 6% special rate) until exhausted. New expenditure from April 2025 does NOT qualify.

Carried forward losses

FHL losses transition to your general property business and can offset other property income in future years.

BADR on sale

You may still claim BADR if:

  • Your FHL business genuinely ceased BEFORE 6 April 2025
  • You dispose of the property within 3 years of cessation
  • You owned the property for at least 2 years before cessation

What to do now

  1. Review your financial projections

    Recalculate the after-tax return on your holiday let without FHL benefits. Consider whether the investment still meets your objectives.

  2. Check your mortgage interest position

    If you're a higher rate taxpayer with significant mortgage debt, calculate the impact of restricted interest relief.

  3. Review capital expenditure plans

    Major refurbishments or equipment purchases no longer qualify for capital allowances. Factor this into renovation decisions.

  4. Consider business rates position

    Business rates eligibility is unchanged. If you don't already pay business rates, apply if you meet the criteria.

  5. Update your accountant

    Ensure your accountant is aware of the changes for your 2025/26 tax return and any transitional claims.

  6. Consider timing of any planned sale

    If you're thinking of selling, review whether you qualify for transitional BADR based on cessation date.

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