Major furnished holiday let tax changes from April 2025

For many years, UK-based owners of furnished holiday lets (FHL) in the UK and EEA enjoyed clear tax advantages, with many distinct differences in tax rules. But that changed on 6 April 2025, with the abolition of the FHL tax regime, a move that was first announced in the 2024 Spring Budget.

The government says it has abolished the FHL tax regime to promote fairness and incentivise longer-term residential letting by removing tax treatment differences, while simplifying the UK tax system.

Big implications for FHL owners

It’s not welcome news for many FHL owners, with furnished holiday rentals now being treated the same as any other residential rental property as regards tax. The changes remove the specific tax treatment and separate reporting requirements for FHLs, with income and gains from a furnished holiday let now part of someone’s UK or overseas property business and treated in line with other property income and gains.

Many FHL owners took steps to shelter themselves from the new Income Tax and Capital Gains Tax implications the abolition of the FHL tax regime has brought. To limit their CGT liability, some owners brought forward plans to sell or gift FHL properties. The changes also have profound pension implications.  

So, if you’re an FHL owner, what key changes have been introduced and how will they affect you?

FHL tax regime change summary

1. Profits no longer count towards net earnings for claiming tax relief on pension contributions. As a result, many FHL owners may not be able to contribute the same amount to their pension, which could affect when many FHL owners retire. This may not be as soon as some would have hoped, while pension payments may also be much less than they’d banked on.

Top tip! If you haven’t done so already, seek tailored advice from your tax or pension adviser.    

2. Whereas mortgage interest payments were previously fully deductible, now relief for mortgage interest will be capped at 20%, which will increase many FHL owner’s tax bills significantly.

Need to know! The April 2025 changes do not affect the way general expenses are claimed. Utilities, repairs and consumables (eg toiletries and cleaning products) can still be claimed as previously.

3. Capital allowances are no longer available on FHL fixtures, furniture or furnishings. Replacement of Domestic Items Relief is available for movable furniture (eg beds, free-standing wardrobes, etc), furnishings (eg curtains, linens, carpets, floor coverings, etc), household appliances (eg TVs, fridges, freezers, etc) and kitchenware (eg crockery, cutlery, etc). 

4. Previously, in some cases, Capital Gains Tax on disposal of FHLs qualified for Business Asset Disposal Relief, where the first £1m of lifetime gains were taxed at 10%. Alternatively, the gain could be “rolled over” on purchases of other new business assets. However, now, the normal residential property CGT tax rate (currently 24%) applies and the “rollover” of gains is not possible.

HMRC has also published guidance on treatment of losses. “Any losses incurred by the FHL in the current year or carried forward from previous years will be treated as losses of the ongoing UK or overseas property business going forward. This means the losses can be set off against other property income for individuals, or against other income for companies in the following year.”

Jointly held property

The share of any profit or loss from jointly owned properties is normally the same as the share owned in the let property. Joint owners can agree a different split of profits and losses, but the share for tax purposes must be the same as the actual agreed share.

However, where joint owners are spouses or civil partners, profits and losses are treated as equal shares unless:

• entitlement to the income and the property are in unequal shares and
• spouses or civil partners submitted a Form 17 to tell HMRC that their share of profits and losses is to match the share each holds in the property
• the form must be submitted to HMRC within 60 days of your declaration of unequal shares
• you’ll need to prove that your beneficial interests in the property are unequal (eg by providing a declaration or deed).

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.