Property and Landlord Tax UK 2026/27 — Rental Income, CGT, Relief and FilingFurnished Holiday Let Tax Changes 2025 — What Landlords Need to Know
The furnished holiday let tax regime is being abolished from April 2025. What's changing, how it affects landlords, and what to do next.
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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 |
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