Furnished holiday let tax rules: what changed when the FHL regime was abolished

In the UK, the furnished holiday lettings tax regime has gone, so former FHLs are now taxed under the ordinary property-income rules unless they are genuinely trading businesses. In England, Wales, Scotland and Northern Ireland the income tax, CGT and corporation tax changes are UK-wide, but business-rates self-catering tests still differ by nation.

What happened to the furnished holiday let tax rules?

The furnished holiday let tax rules were abolished for Income Tax and Capital Gains Tax from 6 April 2025, and for Corporation Tax and corporation-tax chargeable gains from 1 April 2025, not 5 April 2025. The Finance Act 2025 says “Schedule 5 contains provision abolishing the special rules relating to the commercial letting of furnished holiday accommodation,” and HMRC’s Property Income Manual states: “The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.” The practical change is that the old furnished holiday letting rules, HMRC holiday let rules and FHL tax reliefs no longer give separate treatment for finance costs, capital allowances, pensionable relevant earnings or Business Asset Disposal Relief. HMRC also clarifies that “the income has always been property income, not trading, for tax purposes.”

What counts as a furnished holiday let now?

No tax definition of a furnished holiday let survives from 2025/26, because the legislation defining commercial furnished holiday accommodation was removed; the term now mainly survives in ordinary speech, lending and local-rating rules. The Finance Act 2025 says: “Omit Chapter 6 of Part 3 (which defines ‘the commercial letting of furnished holiday accommodation’),” and HMRC says “FHL status only applies to the tax year 2024 to 2025, or to 31 March 2025 for companies.” The old furnished holiday let conditions, including the 105-day actual letting test, no longer decide income tax or CGT treatment. Business rates are separate: in England, “Stays over 28 nights are not classed as short-term lets”; Wales still uses a 182 actual let-days test, with averaging from 1 April 2026 in some cases; Scotland uses 70 days actually let within a 140-day availability period; and Northern Ireland turns on an intention to make the accommodation commercially available for 140 days or more.

Is mortgage interest still tax deductible on a holiday let?

For an individual holiday-let owner, mortgage interest is no longer deducted in full from rental profits under the old FHL rules; it is relieved through the residential property finance-cost reducer, described by HMRC as 20%, with the property basic rate changing to 22% from 2027/28 where that rate applies. The income-tax restriction says: “In calculating the profits of a property business for income tax purposes for the tax year 2020-21 or any subsequent tax year, no deduction is allowed for costs of a dwelling-related loan.” HMRC’s FHL abolition note says: “After the changes individual landlords can still obtain relief for finance and mortgage interest costs, but at the basic rate of Income Tax of 20%, in the same way as other landlords.” Companies are different: HMRC states that “Companies are not subject to the finance cost restriction rules.” That difference is why some former furnished holiday let mortgage interest planning now turns on ownership structure, not FHL status.

Can you still claim capital allowances on holiday let furniture?

You cannot claim new capital allowances on holiday-let furniture, white goods or fixtures for a dwelling-house after the FHL regime ended, but old FHL capital-allowance pools can still produce writing-down allowances. The Capital Allowances Act rule is blunt: “The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.” HMRC applies that directly to holiday lets: “If the fixtures are for use within a dwelling-house (a holiday home used for holiday letting is a dwelling-house) and the purchaser is carrying on a property business, Section 35 Capital Allowances Act 2001 will treat the expenditure as not being qualifying expenditure.” The transitional rule protects pooled expenditure, because the Finance Act 2025 says section 35 “does not apply to expenditure carried forward” under the FHL repeal provisions. New sofas, beds, appliances and kitchenware are therefore dealt with through replacement-of-domestic-items relief, not fresh plant-and-machinery allowances.

What expenses can you claim on a holiday let now?

Holiday-let owners can still claim ordinary revenue expenses of the property business, but there is no holiday-let-only allowable-expenses code after FHL abolition. HMRC’s clarification says: “The change to the rules does not affect the way that general expenses are claimed.” In practice, holiday let tax deductible expenses still include normal revenue costs such as cleaning, repairs, utilities, platform fees, insurance, advertising, accountancy and management costs, provided they are incurred wholly and exclusively for the property business and are not capital improvements. The big changes sit around finance costs and furniture: individual owners get finance-cost relief through the reducer rather than a full profit deduction, and replacement-of-domestic-items relief covers replacement furniture, furnishings, household appliances and kitchenware. The statutory wording says a domestic item means “an item for domestic use (such as furniture, furnishings, household appliances and kitchenware), and does not include anything that is a fixture.”

Do furnished holiday lets still qualify for Business Asset Disposal Relief?

Furnished holiday lets do not qualify for Business Asset Disposal Relief merely because they used to be FHLs, and HMRC says BADR is not available on a disposal of the whole or part of an FHL business on or after 6 April 2025. HMRC’s Capital Gains Manual states: “BADR will not be available where there is a disposal of the whole or part of a FHL business on or after 6 April 2025 (section 169I(2)) nor on the sale of shares from that date where the company is no longer treated as a trading company as a result of the abolition of the FHL rules (section 169I(6)).” The cessation exception uses the same correct date: the Finance Act 2025 protects certain disposals only where “the date on which the business ceases to be carried on is before 6 April 2025.” HMRC also says “The abolition of the FHL rules does not mean that a business has ceased for BADR purposes.” A genuine hotel-style trade may still be different, but ordinary furnished letting is rarely trading income.

Do you pay VAT on a holiday let?

Holiday accommodation is still standard-rated for VAT, but you only have to register and charge VAT once your taxable turnover exceeds the VAT registration threshold, unless you register voluntarily. HMRC’s VAT notice says: “If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at either the standard rate (or the temporary reduced rate) on any charges that you make regardless of the length of occupation or description of the charges.” The FHL abolition note confirms that “Holiday accommodation, whether previously qualifying as an FHL or not is still standard rated for VAT.” The £90,000 VAT registration threshold has applied since 1 April 2024, with the legislation note saying the Order “increases the prescribed registration values from £85,000 to £90,000.” The 28-day reduced-value rule often associated with hotels does not rescue holiday cottages, because HMRC says: “There is no reduced value rule for holiday accommodation.”

How is holiday let and Airbnb income taxed now?

Holiday let and Airbnb income is now taxed as ordinary property income, unless the activity is genuinely a trade, so a 60-night short let does not get special FHL treatment just because it is furnished, commercial or advertised on Airbnb. The Finance Act 2025 abolished the FHL rules, and the income-tax repeal applies from 2025/26 because “The amendments made by Part 1 have effect for the purposes of income tax in relation to the tax year 2025-26 and subsequent tax years.” HMRC’s clarification gives the core tax treatment: “If the profit is derived from the exploitation of land then the income is taxable as property income.” The first £1,000 of property rental income remains tax-free, because GOV.UK says: “The first £1,000 of your income from property rental is tax-free.” After that, profits go through the UK or overseas property pages, with residential finance-cost restriction for individuals and ordinary property-business expense rules.

What should you do now the furnished holiday let regime has gone?

Former furnished holiday let owners should update tax projections, separate old capital-allowance pools from new furniture spending, review mortgage-interest relief, and check whether their property still meets the local self-catering business-rates test. HMRC is explicit that “Repeal of FHL rules does not mean you have to change the way you rent out property,” so the decision to stay as a holiday let, move to long-term letting, incorporate or sell is commercial as well as tax-driven. Keep claiming writing-down allowances only on qualifying FHL capital-allowance pools created by the transitional date, because HMRC says: “Where qualifying capital expenditure has been included in a capital allowance pool by 5 April 2025, Writing Down Allowances, balancing allowances and charges can continue to be claimed after April 2025 on that pooled expenditure until it is used up or a small pool claim is made.” Abodient can hold property documents, lease records, deposit scheme details and compliance expiries, which matters because former FHL owners now need one property record that works for ordinary letting, short letting and tax review rather than a separate FHL category.

Last reviewed September 2026.

Sources

• Finance Act 2025 s.25 — “Schedule 5 contains provision abolishing the special rules relating to the commercial letting of furnished holiday accommodation.” Source
• Finance Act 2025 Schedule 5 Part 5 — “The amendments made by Part 1 have effect for the purposes of income tax in relation to the tax year 2025-26 and subsequent tax years.” Source
• Finance Act 2025 Schedule 5 Part 5 — “The amendments made by Part 2 have effect for the purposes of corporation tax in relation to accounting periods beginning on or after 1 April 2025.” Source
• HMRC Property Income Manual PIM4165 — “The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “Before repeal the FHL rules provided for specific reliefs but the income has always been property income, not trading, for tax purposes.” Source
• Finance Act 2025 Schedule 5 — “Omit Chapter 6 of Part 3 (which defines ‘the commercial letting of furnished holiday accommodation’).” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “However, FHL status only applies to the tax year 2024 to 2025, or to 31 March 2025 for companies.” Source
• GOV.UK guidance on business rates for self-catering property in England — “Stays over 28 nights are not classed as short-term lets.” Source
• Business Wales non-domestic rates guidance — “From 1 April 2026, an average of the days for which a property has actually been commercially let over the past two of three years may be taken as evidence of compliance, where 182 days has not been achieved in the most recent 12 months.” Source
• The Council Tax (Dwellings and Part Residential Subjects) (Scotland) Amendment Regulations 2021 reg.2 — “(ii) have in practice been so let in the financial year for a total of 70 days or more of the period of 140 days described in head (i).” Source
• Rates (Northern Ireland) Order 1977 Schedule 5 — “(a) the owner or, as the case may be, the occupier of the hereditament intends that, in the year from the day in relation to which the question is being considered, the whole of the hereditament or self-contained part will be available for letting commercially, as self-catering accommodation, for short periods totalling 140 days or more; and” Source
• ITTOIA 2005 s.272A — “In calculating the profits of a property business for income tax purposes for the tax year 2020-21 or any subsequent tax year, no deduction is allowed for costs of a dwelling-related loan.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “After the changes individual landlords can still obtain relief for finance and mortgage interest costs, but at the basic rate of Income Tax of 20%, in the same way as other landlords.” Source
• Finance Act 2026 s.7 — “(a) the property basic rate is 22%,” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “Companies are not subject to the finance cost restriction rules.” Source
• Capital Allowances Act 2001 s.35 — “The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “If the fixtures are for use within a dwelling-house (a holiday home used for holiday letting is a dwelling-house) and the purchaser is carrying on a property business, Section 35 Capital Allowances Act 2001 will treat the expenditure as not being qualifying expenditure.” Source
• Finance Act 2025 Schedule 5 — “Section 35 of CAA 2001(expenditure on plant or machinery for use in a dwelling-house not qualifying expenditure) does not apply to expenditure carried forward in accordance with sub-paragraph (3)(b)(i).” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “The change to the rules does not affect the way that general expenses are claimed.” Source
• ITTOIA 2005 s.311A — “In this section, “domestic item” means an item for domestic use (such as furniture, furnishings, household appliances and kitchenware), and does not include anything that is a fixture.” Source
• HMRC Capital Gains Manual CG73505 — “BADR will not be available where there is a disposal of the whole or part of a FHL business on or after 6 April 2025 (section 169I(2)) nor on the sale of shares from that date where the company is no longer treated as a trading company as a result of the abolition of the FHL rules (section 169I(6)).” Source
• Finance Act 2025 Schedule 5 — “(a)a disposal of business assets within section 169I(2)(b) of TCGA 1992(assets used for purposes of business) where the date on which the business ceases to be carried on is before 6 April 2025;” Source
• HMRC Capital Gains Manual CG73505 — “The abolition of the FHL rules does not mean that a business has ceased for BADR purposes.” Source
• HMRC Business Income Manual BIM22001 — “Income from furnished lettings is rarely trading income, even when the landlord works full time running the rental business.” Source
• VAT Notice 709/3 — “If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at either the standard rate (or the temporary reduced rate) on any charges that you make regardless of the length of occupation or description of the charges.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “Holiday accommodation, whether previously qualifying as an FHL or not is still standard rated for VAT.” Source
• VAT SI 2024/307 explanatory note — “This Order increases the prescribed registration values from £85,000 to £90,000.” Source
• VAT Notice 709/3 — “There is no reduced value rule for holiday accommodation.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “If the profit is derived from the exploitation of land then the income is taxable as property income.” Source
• GOV.UK renting out a property — “The first £1,000 of your income from property rental is tax-free.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “Repeal of FHL rules does not mean you have to change the way you rent out property.” Source
• HMRC clarification on abolition of the furnished holiday lettings tax regime — “Where qualifying capital expenditure has been included in a capital allowance pool by 5 April 2025, Writing Down Allowances, balancing allowances and charges can continue to be claimed after April 2025 on that pooled expenditure until it is used up or a small pool claim is made.” Source