When are furnished holiday let tax rules changing?

The furnished holiday let (FHL) tax regime is being abolished from April 2025. From the 2025/26 tax year onwards, furnished holiday lets will be taxed the same as standard residential lets. This means losing mortgage interest relief, capital allowances on furniture, and capital gains tax reliefs that FHL landlords currently enjoy.

What tax benefits are FHL landlords losing?

FHL landlords are losing: full mortgage interest relief (replaced by 20% tax credit), capital allowances on furniture and equipment, business asset disposal relief (10% CGT rate) on sale, business asset rollover relief, and the ability to count FHL income as earnings for pension contributions. These changes align FHL taxation with standard residential lettings.

Should I sell my holiday let before April 2025?

Possibly, if you want to benefit from business asset disposal relief (10% CGT rate up to £1m lifetime limit). After April 2025, you'll pay standard residential CGT rates (18%/24%). However, selling depends on many factors — market conditions, your overall tax position, and whether the property is still a profitable investment without the tax advantages.

Can I still make money from a holiday let after the tax changes?

Yes — many holiday lets generate good rental income. But the net return will be lower due to higher tax. You'll need to reassess profitability without mortgage interest deductions, capital allowances, and CGT reliefs. Some landlords may switch to long-term letting or sell if the numbers no longer work.

Furnished Holiday Let Tax Changes 2025 — What Landlords Need to Know | PocketWise

The furnished holiday lettings (FHL) tax regime — which gave significant tax advantages to holiday let landlords — is being abolished from April 2025. This is one of the biggest changes to property tax in years.

What’s Changing

Tax benefit	Before April 2025 (FHL rules)	From April 2025
Mortgage interest	Full deduction against rental income	20% tax credit only (same as standard lettings)
Capital allowances	Claim for furniture, equipment, fixtures	No capital allowances
Capital Gains Tax on sale	Business asset disposal relief available (10% rate)	Standard residential CGT rates (18%/24%)
Rollover relief	Defer CGT by reinvesting	Not available
Pension contributions	FHL income counts as “earnings”	No longer counts as earnings
Loss relief	Offset against other income	Offset against property income only
Business rates	Could opt for business rates (potentially lower)	Under review — may still apply in some cases

Who Is Affected?

Situation	Impact
FHL landlord with mortgage	High impact — losing full interest deduction
FHL landlord without mortgage	Moderate — losing capital allowances and CGT reliefs
Higher/additional rate taxpayer FHL	Highest impact — mortgage interest relief drops most
Planning to sell an FHL	Significant — losing 10% CGT rate
FHL income used for pension eligibility	Impact — may lose ability to make contributions

Mortgage Interest — The Biggest Change

How It Worked (FHL)

Taxpayer	Rental income	Mortgage interest	Taxable income	Tax rate	Tax
Higher-rate	£30,000	£12,000	£18,000	40%	£7,200

How It Works Now (Standard Lettings)

Taxpayer	Rental income	Tax credit (20% of interest)	Taxable income	Tax rate	Tax	Tax credit	Net tax
Higher-rate	£30,000	£2,400 (20% × £12,000)	£30,000	40%	£12,000	-£2,400	£9,600

Extra tax in this example: £2,400 per year

Impact by Tax Band

Tax rate	£10,000 mortgage interest	Extra tax per year
Basic rate (20%)	£10,000	£0 (no change)
Higher rate (40%)	£10,000	£2,000
Additional rate (45%)	£10,000	£2,500

Basic-rate taxpayers are unaffected. Higher and additional-rate taxpayers pay significantly more.

Capital Gains Tax on Sale

Before April 2025

Relief	Detail
Business Asset Disposal Relief	10% CGT rate on first £1m of lifetime gains
Rollover relief	Defer CGT by reinvesting in another business asset
Holdover relief	Defer CGT when gifting to family

From April 2025

Gain	Basic-rate taxpayer	Higher-rate taxpayer
Under BADR (before April 2025)	10%	10%
Standard residential CGT (from April 2025)	18%	24%

Example: Selling a Holiday Let

Detail	Before April 2025	From April 2025
Purchase price	£200,000	£200,000
Sale price	£350,000	£350,000
Gain	£150,000	£150,000
CGT rate (higher-rate taxpayer)	10% (BADR)	24%
CGT due	£15,000	£36,000
Difference	—	£21,000 more tax

Capital Allowances Lost

Item	FHL (before)	Standard let (after)
Furniture and furnishings	Capital allowances (full deduction)	Replacement of domestic items relief only
Equipment (e.g. hot tub, games room)	Capital allowances	No deduction
Fixtures and fittings	Capital allowances	No deduction

Replacement of domestic items relief means you can only deduct the cost of replacing a domestic item with a similar one — not the original purchase.

What to Do Now

Action	Detail
Review profitability	Recalculate returns without FHL tax advantages
Consider selling before April 2025	To use BADR (10% CGT)
Review your mortgage	Can you reduce borrowing to minimise interest impact?
Consider switching to long-term letting	May be more profitable without FHL benefits
Speak to a tax adviser	Essential for any major decisions
Consider incorporation	Companies can still deduct mortgage interest (but other implications)
Review pension contributions	If relying on FHL income for pension eligibility

FHL vs Standard Letting — Full Comparison

Feature	FHL (pre-April 2025)	Standard residential let
Mortgage interest	Full deduction	20% tax credit
Capital allowances	Yes	No
CGT rate on sale	10% (BADR)	18% / 24%
Rollover relief	Available	Not available
Pension contributions	Income qualifies	Doesn’t qualify
Loss relief	Against other income	Against property income only
VAT	Below threshold: exempt	Exempt
Income treatment	Trading income	Investment income

Summary

Change	Impact
FHL regime abolished	April 2025
Mortgage interest	Now 20% tax credit only — costs higher-rate taxpayers significantly more
Capital allowances	Lost — can only claim replacement of domestic items
CGT on sale	18%/24% instead of 10% BADR
Pension contributions	FHL income no longer counts as earnings
Best response	Re-evaluate profitability, take tax advice, consider your options