The FHL regime is gone: what holiday let owners need to do now

Updated July 2026 · 8 min read · General information, not tax advice

The Furnished Holiday Let regime ended on 6 April 2025 (1 April for companies). If you own a holiday let, HMRC now taxes it the same way as an ordinary buy-to-let. The 210-day and 105-day tests no longer decide anything on your tax return, and the perks that came with passing them have gone.

More than a year on, plenty of owners still file as if the old rules apply. Others overpay because nobody told them which reliefs survived. This guide covers both.

What you lost in April 2025

1. Full mortgage interest relief

Under the FHL rules you deducted every pound of mortgage interest from your letting income. Now, as an individual owner, you get a basic-rate credit worth 20% of the interest instead. If you pay tax at 40%, interest of £10,000 a year costs you roughly £2,000 more in tax than it did before. At 45%, £2,500.

2. Capital allowances on new purchases

Sofas, beds, kitchens and hot tubs bought for an FHL earned capital allowances. Purchases made from April 2025 onwards earn nothing when they are new. You can still claim for like-for-like replacements (more on that below), and any allowance pool you built up before the change carries on winding down as normal.

3. The capital gains reliefs

Selling an FHL used to qualify for Business Asset Disposal Relief at 10%, and you could roll gains into a new property or hold them over on a gift. Those routes have closed for disposals after April 2025. A sale now faces residential property CGT rates of 18% or 24%. If you ceased letting before the abolition, a limited transitional window may still apply to you: ask before you sell, not after.

4. Pension contributions and profit splits

FHL profits counted as relevant earnings, so owners could make large pension contributions against them. That has stopped. And if you own the property jointly with a spouse, the default split is now 50/50 regardless of who does the work: changing it means a Form 17 election backed by the actual beneficial ownership.

What survived

Business rates instead of council tax

The abolition changed income tax, not local tax. In England, a holiday let available for 140 nights a year and actually let for 70 still qualifies for business rates, and many lets then pay nothing at all under small business rate relief. With councils across Cornwall, Devon, Wales and the Lakes now charging a 100% premium on second homes, this switch matters more than it ever has. Wales sets higher thresholds (252 nights available, 182 let), so check your nation's rules. We walk through the whole thing, nation by nation, in our guide to holiday let business rates and the 140-night rule.

Replacement of domestic items relief

Replacing a worn sofa, mattress or washing machine attracts relief on the replacement cost. The first purchase of a new item does not. Keeping invoices, and knowing which side of that line a purchase falls on, decides whether the relief holds up in an enquiry.

Full interest deduction inside a company

Companies never used the FHL rules for interest: they deduct it in full under the loan relationship rules, and still do. That single fact has pushed many higher-rate owners to look at incorporating. Sometimes it works. Moving an existing property into a company can trigger CGT and stamp duty, so the maths needs doing properly before anything is signed. We set out the five things it turns on in should your holiday let be in a limited company?

Your carried-forward losses

Losses your FHL built up before April 2025 were not wiped out. They rolled into your general UK property business and offset future rental profits, including profits from the same holiday let.

The decisions worth making this year

1. Check your last return. If your 2025/26 self-assessment claimed full interest relief or allowances on new purchases, it needs correcting before HMRC corrects it for you. Our walkthrough of filing your first post-FHL tax return covers what changed on the form.
2. Run the incorporation maths. The higher your mortgage interest and tax band, the stronger the case. Weigh it against the transfer costs and the admin of running a company.
3. Secure business rates if you qualify. The letting-night thresholds are now the gateway to the biggest saving left, especially in premium-charging council areas.
4. Review joint ownership. The forced 50/50 split punishes couples where one partner pays a higher rate. A Form 17 election with the right beneficial ownership can restore a better split.
5. Watch the VAT threshold. Holiday accommodation carries 20% VAT once your turnover passes £90,000. At holiday-let nightly rates, two or three strong properties get there faster than most owners expect.
6. Plan any sale early. CGT at 24% instead of BADR at 10% changes the arithmetic of selling. Timing, ownership and reliefs all still move the number.

Where a specialist earns their fee

None of the moves above is exotic. All of them go wrong when a generalist applies buy-to-let habits to a holiday let, or when an owner reads a 2024 blog post and assumes the FHL rules still run. The accountants we introduce work with holiday lets week in, week out, on fixed fees agreed before you commit to anything.