Furnished Holiday Lettings Abolished — 2026

With furnished holiday lettings abolished as a separate tax regime from April 2025, the first full tax return under the new rules is due on 31 January 2027. If you own a holiday cottage, a coastal flat or a city short-let, your tax bill for 2025/26 may look very different from last year. The rent is the same. The rules are not.

This guide covers what holiday let landlords lost when furnished holiday lettings were abolished, which transitional rules soften the blow, how to report on Self Assessment for 2025/26 and 2026/27, and the realistic options from here. If you are new to the wider property tax rules, read our guide to UK landlord tax in 2026 alongside this one.

Furnished holiday lettings abolished: what changed

Until April 2025, a property that met the FHL tests (available to let for 210 days and actually let for 105 days a year, among other conditions) was taxed more like a trade than a normal let. That gave holiday let owners four advantages over ordinary landlords.

HMRC's policy paper on the abolition of the FHL regime lists them, and all four have now gone:

Area	Before April 2025 (FHL)	From April 2025
Mortgage interest	Fully deductible	Basic-rate tax credit only
Furniture and equipment	Capital allowances	Replacement of domestic items relief only
Selling the property	BADR, rollover and gift relief available	Not available (limited exceptions)
Pension contributions	Profits counted as relevant UK earnings	Profits no longer count

The start dates are 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. From then, your holiday let joins your UK property business (or your overseas property business, for a let abroad) and is taxed in the same way as any other residential let.

The FHL tests no longer matter for Income Tax. You do not need to track 105 days of lets to keep a tax status, because there is no status left to keep.

Holiday let mortgage interest: the biggest cash hit

For most owners with a mortgage, the finance cost restriction is where holiday let tax in 2026 hurts most. Before April 2025, you deducted holiday let mortgage interest from your rental income like any other cost. Now you must add it back and claim a 20% tax credit instead. HMRC explains this in its guidance on the FHL repeal.

If you pay basic-rate tax, the result is close to neutral. If you pay higher-rate or additional-rate tax, you lose relief at 20% or 25% on every pound of interest.

Worked example: a higher-rate holiday let owner

Priya earns a £60,000 salary. Her holiday cottage brings in £40,000 of bookings. Running costs (cleaning, platform fees, utilities, insurance, repairs) come to £14,000, and her mortgage interest is £9,000. We have left out capital allowances to keep the example simple.

2024/25 under the FHL rules:

• Profit: £40,000 − £14,000 − £9,000 = £17,000.
• Tax at 40%: £6,800.

2025/26 with furnished holiday lettings abolished:

• Profit (interest not deducted): £40,000 − £14,000 = £26,000.
• Tax at 40%: £10,400.
• Less 20% credit on £9,000 of interest: −£1,800.
• Net tax: £8,600.

Same cottage, same bookings, £1,800 more tax. The extra profit on paper can also push you over the £100,000 point where your personal allowance starts to taper, or into the High Income Child Benefit Charge. Our guide to buy-to-let mortgage interest relief walks through those knock-on effects in detail.

Property income tax rates from April 2027

There is a second change coming. From 6 April 2027, property income in England, Wales and Northern Ireland will be taxed at its own rates: 22% basic, 42% higher and 47% additional. Finance cost relief will be given at 22% instead of 20%. HMRC confirms this in its technical note on property, savings and dividend tax rates. Scotland and Wales can set their own property rates, so check the position if you live there.

On Priya's figures, and assuming the same bands, her 2027/28 bill would be £26,000 × 42% = £10,920, less a £1,980 credit (22% of £9,000). That gives £8,940, a further £340 a year.

FHL capital allowances and the transitional rules

Under the FHL regime you could claim capital allowances on furniture, white goods, hot tubs and other kit used in the property. That route has closed for new spending. The rules on plant and machinery for use in a dwelling-house now apply to your holiday let, as they do to any other residential let.

The good news is that the past spending is not wasted. HMRC's Capital Allowances Manual at CA20025 sets out the transitional rules:

• Your unrelieved FHL pool moves across into the pool for your property business. You keep claiming writing down allowances on it.
• The move itself is not treated as a disposal, so it does not trigger a balancing charge.
• If you later sell or scrap items from that pool, balancing adjustments are worked out as if the items had always been used in the property business.

The main pool writing down allowance was 18% for 2025/26. It dropped to 14% from 6 April 2026 for businesses within Income Tax, according to the government's policy paper on the main rate change. So a large legacy pool now gets relieved more slowly.

For new spending, you can only claim replacement of domestic items relief. That covers like-for-like replacements of furniture, appliances and furnishings. It does not cover the first fit-out of a new holiday let, and it does not cover an upgrade beyond the like-for-like cost.

FHL losses carried forward

Before April 2025, FHL losses could only be set against future profits of the same FHL business. Unused losses now carry forward against profits of your wider property business. If you also own ordinary buy-to-lets, old holiday let losses can now shelter that rental profit too.

Holiday let business asset disposal relief and selling up

Selling a holiday let used to be one of the main draws of the FHL regime. A qualifying sale could get Business Asset Disposal Relief (BADR), rollover relief or gift relief. For disposals on or after 6 April 2025, these reliefs are not available. HMRC sets out the detail in its Capital Gains Manual at CG73505.

There are a few exceptions:

• The business ceased before 6 April 2025. If your FHL business genuinely stopped before that date, BADR can still apply to a later sale, provided you meet the normal conditions. One of those is selling within three years of the business ceasing.
• Rollover relief claimed earlier. If you sold an FHL asset before 6 April 2025 and roll the gain into an asset used in a genuine trade, that relief is not disturbed.
• Anti-forestalling rule. If you exchanged unconditional contracts before 6 April 2025 but completed afterwards, you generally cannot claim the old reliefs. There is a narrow exception for contracts made wholly for commercial reasons, not to avoid the change.

Abolition itself does not count as the business ceasing. Simply carrying on letting after April 2025 does not start a three-year BADR window.

A sale today is taxed like any other second property. Residential gains are taxed at 18% within your basic rate band and 24% above it, after the £3,000 annual exempt amount. Those figures come from HMRC's Capital Gains Tax rates and allowances page. You must report and pay the tax within 60 days of completion.

Pension contributions: a quieter loss

FHL profits used to count as relevant UK earnings. That mattered if your holiday let was your main source of income, because tax relief on personal pension contributions is capped at 100% of relevant UK earnings, or £3,600 gross if higher.

From April 2025, holiday let profits no longer count. If you have no salary or self-employed income, the most you can now pay into a personal pension with tax relief is £3,600 gross. HMRC's guidance on tax on your private pension explains the limits. If you have a salary as well, the salary still counts as normal.

Holiday let tax 2026: reporting on Self Assessment

2025/26 tax return (due 31 January 2027)

This is the first return without the FHL pages. The HMRC UK property notes for 2026 confirm that holiday let income now goes in with all your other UK property income. In practice:

1. Box 20 — total rents, including your holiday let bookings and any other UK lets.
2. Boxes 24 to 29 — running costs such as cleaning, platform fees, utilities, insurance and repairs.
3. Box 30 — the private use adjustment, if you or your family stayed in the property.
4. Box 35 — writing down allowances on the pool transferred from your FHL business.
5. Box 36 — replacement of domestic items relief.
6. Box 39 — losses brought forward, including any unused FHL losses.
7. Box 44 — mortgage interest and other residential finance costs. Do not put these in the expense boxes.

A holiday let abroad goes on the Foreign pages (SA106) as part of your overseas property business. The paper return deadline for 2025/26 is 31 October 2026. The online deadline is 31 January 2027. Our Self Assessment tax return guide covers registration, deadlines and payments on account.

If you provide substantial services, such as running a guest house or bed and breakfast, the income may count as a trade. HMRC's notes say that goes on the Self-employment pages instead. This is a separate test from the old FHL rules and needs looking at case by case.

2026/27 and Making Tax Digital

For 2026/27, the same SA105 approach applies, but with a 14% main pool rate on your transferred capital allowances. The bigger change is Making Tax Digital for Income Tax. If your combined gross income from property and self-employment is over £50,000, you have had to keep digital records and send quarterly updates since April 2026. The threshold falls to £30,000 from April 2027.

Holiday let bookings count towards that gross figure, which means plenty of short-let owners are already inside the scheme. Our Making Tax Digital for Income Tax guide explains what to do.

Your options with furnished holiday lettings abolished

There is no way to bring the old reliefs back. The useful decisions are about structure and ownership.

Review how joint ownership is split

Under the FHL rules, married couples and civil partners had more freedom over how they split holiday let profits. From 6 April 2025, the normal rule applies: spouses and civil partners are taxed 50:50 on jointly owned property. HMRC confirms this in its guidance on jointly let property after the FHL repeal.

To change that, you must actually own the property in unequal shares, usually through a declaration of trust. Then you both sign Form 17 and send it to HMRC within 60 days. Moving a bigger share to a lower-earning spouse can cut the overall bill. It is a real transfer of ownership, though, not a paper exercise.

Joint owners who are not married or in a civil partnership can agree a profit split that differs from their ownership shares. The tax return must match the split you actually agree.

Consider holiday let incorporation

A limited company is not caught by the finance cost restriction. It deducts mortgage interest in full and pays Corporation Tax on what is left. For a higher-rate owner with a large mortgage, holiday let incorporation can look attractive.

The costs of getting the property into a company are the same as for any buy-to-let:

• Capital Gains Tax on the transfer, at market value, at 18% or 24%.
• Stamp Duty Land Tax for the company, including the higher rates for additional dwellings. See our Stamp Duty guide for landlords.
• A new limited company mortgage, often at a higher rate.
• Dividend tax when you draw profits out personally.

A company also lost FHL capital allowances from 1 April 2025, so incorporating does not bring those back. Incorporation relief on the gain is only available where the letting amounts to a business in its own right. That is a high bar and needs specialist advice.

Sell, keep or change how you let

Some owners will decide the after-tax return no longer justifies the work. Others will switch to longer lets, which may reduce void periods and cleaning costs. If you sell, remember there is no BADR on a sale today unless one of the narrow exceptions applies. Run the numbers on CGT and the 60-day deadline before you list.

If you would like help modelling your figures, our accountancy services include landlord tax returns and property structuring reviews for clients across the UK, from our Manchester office.

FAQ

Frequently asked questions

When was the furnished holiday lettings regime abolished?

The furnished holiday lettings rules stopped applying from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax. From those dates, holiday let income forms part of your ordinary UK or overseas property business.

Can I still deduct mortgage interest on a holiday let?

Not as an expense if you own the holiday let personally. Since April 2025 the finance cost restriction applies, so you get a tax credit at the basic rate (20%) instead. A limited company that owns a holiday let can still deduct interest in full against its profits.

What happens to the capital allowances I already claimed?

Your unrelieved FHL pool moves into the pool for your property business and you keep claiming writing down allowances on it. You cannot claim capital allowances on new furniture or equipment for the property. Replacement of domestic items relief covers like-for-like replacements instead.

Can I claim Business Asset Disposal Relief when I sell my holiday let?

Generally no, for disposals on or after 6 April 2025. The exception is where the holiday let business actually ceased before that date and you meet the usual conditions, including selling within three years of cessation.

How do I report former holiday let income on my 2025/26 tax return?

Include it with your other UK property income on the UK property pages (SA105). There is no longer a separate furnished holiday lettings section. Mortgage interest goes in the residential finance costs box, not the expenses boxes.

This article is general guidance, not personal tax advice. Speak to a qualified accountant before acting on it.