UK furnished holiday lettings tax rules are gone: what changed for short-let operators
Since April 2025, UK holiday lets are taxed like any other rental property. Mortgage interest relief, capital allowances and capital gains reliefs all changed.
Key points
- The furnished holiday lettings (FHL) tax regime no longer applies from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax.
- Former FHL income is now treated like other property income. Loan interest for individuals is restricted to basic-rate relief.
- New spending on furniture and equipment moves from capital allowances to replacement of domestic items relief. Existing capital allowance pools can keep being written down.
- Capital gains reliefs for trading business assets, such as business asset disposal relief and roll-over relief, fell away for FHLs.
For years, UK holiday lets that met the furnished holiday lettings (FHL) tests got tax treatment closer to a trading business than a buy-to-let. That regime has now ended. If you run holiday lets, serviced apartments that were taxed as FHLs, or software used by those operators, the numbers behind every property have shifted.
What the FHL regime used to give
HMRC's own summary lists what qualifying FHLs could use that ordinary landlords could not1:
- No finance cost restriction, so loan interest was not capped at basic-rate relief.
- More generous capital allowances on furniture, fixtures and equipment.
- Access to capital gains reliefs for trading business assets.
- FHL profits counted as relevant UK earnings for pension relief.
When it ended
The FHL rules stop applying for tax years starting on or after 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax and Corporation Tax on chargeable gains2. The change was legislated in the Finance Act 20253. An anti-forestalling rule, in force from 6 March 2024, blocks attempts to lock in the old capital gains reliefs through unconditional contracts1.
What changed, side by side
| Area | Under FHL rules | Now |
|---|---|---|
| Mortgage and loan interest (individuals) | Fully deductible | Restricted to a basic-rate tax credit, like other landlords |
| Furniture and equipment | Capital allowances | Replacement of domestic items relief for new spending; existing pools can continue to be written down |
| Selling or gifting the property | Business asset disposal relief, roll-over relief, gift relief and others available | Those reliefs no longer available on the FHL basis |
| Pensions | Profits counted as relevant UK earnings | No longer counted |
One transitional point worth checking with your adviser: where an FHL business ceased before the change, business asset disposal relief may still apply to a disposal within the normal three-year window after it ceased1.
Who feels it most
The biggest hit lands on individual owners with mortgaged holiday lets, because interest relief drops to the basic rate. Owners planning to sell also lose the reliefs that used to reduce the capital gains bill. Operators who run properties through a company are not affected by the individual interest restriction in the same way, but they still lose FHL-specific treatment.
For serviced accommodation businesses that run a genuine trade, such as aparthotels with daily services, the tax position depends on the facts of the business rather than the old FHL tests. That is a question for an accountant, not a blog post.
What to review now
- Rerun each property's profit. Recalculate after-tax returns with the new interest treatment. Our STR profit calculator gives you the pre-tax operating picture to start from.
- Check your furnishing records. Replacement of domestic items relief only covers replacing items, not the first purchase, so keep receipts tied to each replacement.
- Revisit exit plans. If you were counting on business asset disposal relief, the maths on a sale has changed.
- Look at structure with an adviser. Some operators are reviewing whether a company structure makes sense. It comes with its own costs and tax charges on transfer, so get advice before moving anything.
If you build software for UK operators
Owner statements, accounting exports and forecasting tools that assumed FHL treatment need updating. Tax categories that used to feed capital allowances claims now need to map to replacement relief, and profit forecasts should model interest as a tax credit rather than an expense for individual owners.
Check the numbers on your own units
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Sources
- HMRC: Abolition of the furnished holiday lettings tax regime (policy paper)
- HMRC Property Income Manual PIM4165: Repeal of Furnished Holiday Lettings rules
- Finance Act 2025, Schedule 5: Furnished holiday lettings
Last checked 24 September 2026. This article is general information, not legal or tax advice.
