Furnished holiday let tax changes: what's changed and what it means for your tax return

The furnished holiday let (FHL) tax regime has been abolished. It was announced in the March 2024 Budget and took effect from 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. For decades a holiday let that met the qualifying tests was taxed more like a trade than a rental, with a set of advantages ordinary landlords never had. That treatment has gone.

If you own a holiday let, the first time this becomes real is your tax return. The 2024/25 tax year was the last one with FHL status. The 2025/26 tax year is the first without it, and those returns are due by 31 January 2027, so owners filing in 2026 are among the first to see the difference in the numbers.

Below are the five changes that matter, in the present tense, with links to our guide where each is covered in full.

What changed

Holiday lets are now taxed in exactly the same way as any other residential property, whether they are let by the week to holidaymakers or on a long assured shorthold tenancy. There is no longer a separate FHL category to qualify for, and the old day-count tests no longer matter for tax. For the background on what the regime was and who it applied to, see what was a furnished holiday let.

The five changes for holiday let owners

Mortgage interest: Section 24 now applies

FHL owners used to deduct 100% of their mortgage interest as an expense. That has gone. Holiday lets now fall under Section 24, the same restriction long-term residential landlords have had since 2017. Instead of deducting the interest, you get a basic-rate (20%) tax reducer, calculated on the lower of your finance costs or your property profits.

The effect lands hardest on higher-rate and additional-rate owners, who are now taxed on a larger profit figure and only relieved at 20%. It is the single biggest reason a holiday let bill has gone up. We walk through a worked example in how holiday lets are taxed now.

Profit splitting for jointly owned lets

Flexible profit splitting has ended. Where a holiday let is owned jointly, income now follows beneficial ownership share, like any other jointly held property. For married couples and civil partners, that means a 50/50 default unless a Form 17 declaration reflects unequal beneficial shares.

The days of allocating more of the profit to a lower-earning partner purely to save tax are over. If your ownership split no longer suits your circumstances, changing it now means changing the underlying beneficial ownership, not the figures on the return.

Pension contributions

FHL income used to count as relevant UK earnings for pension purposes, which let owners with little other income make tax-relieved pension contributions on the back of it. From April 2025 it no longer counts.

If you have been relying on holiday let income to support your pension contributions, it is worth reviewing your position with both a property tax adviser and a pension adviser, because the amount you can contribute with relief may now be lower.

Reliefs when selling

A holiday let used to be treated as a business asset for capital gains, which opened the door to several reliefs on a sale. Those have gone. Business Asset Disposal Relief (which gave a 10% rate up to a £1 million lifetime limit), business asset rollover relief and gift holdover relief no longer apply to a furnished holiday let disposal.

A holiday let is now taxed on disposal like any other residential property: at 18% within your basic-rate band and 24% above it, with the gain reported and paid within 60 days of completion. If you are weighing up a sale, see sell, hold, or incorporate?.

Capital allowances

Capital allowances are no longer available on a holiday let. Under the old rules you could claim the cost of capital items such as fixtures, fittings, white goods and integral features against your profit. From April 2025 that has stopped, and replacement of domestic items relief applies instead, covering like-for-like replacements of furnishings only.

Expenditure already in a capital allowances pool by 5 April 2025 keeps attracting writing-down allowances until it is used up, but you cannot add new expenditure to it. We set out what is and is not claimable now in what you can claim on a holiday let.

What this means now

Many wondered if this was the end of holiday lets. I don't believe it is. Demand for the properties remains strong, and the change simply means owners have to adapt. The impact varies from one owner to the next, which is exactly why personalised planning matters. Whether it is your pension, a possible sale, or getting this year's return right, the answer depends on your own position.

For most owners the immediate job is getting the 2025/26 return right under the new rules: the higher taxable profit from Section 24, income that has to follow ownership shares, a pension figure that no longer includes the let, and expenses claimed correctly now that capital allowances have gone. These figures interact, and a return that does not add up can be unpicked by HMRC.

For the complete picture, read our guide to furnished holiday lets and tax. It covers each of these changes in full and walks through what your first return without FHL status looks like.