The New Furnished Holiday Let Tax Rules – Explained

Changes to Furnished Holiday Lets (FHLs) were first announced in the UK by Jeremy Hunt during his Spring Budget back on 6 March 2024, but have only now come into place from 6 April 2025 (or 1 April 2025 for those FHLs owned by limited companies). Holiday let owners are understandably concerned about how this will impact their profit margins, so our team have put together this updated guide to explain the holiday let tax changes, as well as provide possible solutions to help preserve profitability.

What are furnished holiday lets (FHLs)?

FHLs are a distinct type of rental property that is specifically intended to be let out on a short-term basis to holidaymakers. They are traditionally popular and successful in tourist destinations such as coastal towns, rural retreats, or historic cities. You’ll often find them listed on platforms like Airbnb, Booking.com, and Vrbo, but unlike other holiday rentals such as hotels, B&Bs, and hostels, they have self-catering facilities.

They are usually defined by their short-term only availability, so they are also unlike buy-to-let properties which are often let to long-term tenants. Not only that but unlike buy-to-let properties, they must be let out furnished as it is one of the qualifying conditions that establish a property is an FHL.

What are the qualifying conditions for FHL properties?

Properties that previously sought to maintain their FHL status were required to meet several qualifying conditions:

• Be located in the UK or any other European country
• Be sufficiently furnished (although no items of furniture have been specified, tenants should have enough to cater for themselves)
• Be available to rent to the public for at least 210 days in a year
• Be actually let for 105 days in a year
• The property must not normally be let for periods of more than 31 consecutive days to the same person, but if it is, those let days don’t count towards the number of let days in the point above.  Additionally, the total of all lettings which exceed 31 days can’t exceed 155 days
• Must be let out commercially at market rate (if you let out your FHL to friends and family at a reduced rate, this will not count to the 105 days it needs to be let in a year).

Arguably, now that the FHL rules have been abolished these prerequisites are no longer relevant. Nevertheless, one tax benefit that currently remains is that FHLs can be eligible to be subject to business rates rather than council tax. For some landlords, this can be far more favourable, especially if their properties are entitled to small business rates relief. Whether your property qualifies will be determined by your own local council, so be aware that these conditions may still apply for business rates purposes but not for income tax relief purposes.

So, what are the tax changes for furnished holiday lettings?

Essentially, the new rules simply mean that the preferential tax treatment FHL businesses once received is no longer available. They are now taxed in the same way as other rental properties such as long-term buy-to-lets. We’ve summarised all the tax advantages that have now been abolished below:

• You can no longer claim capital allowances for the cost of furniture, fixtures, home improvements, or other equipment, unless it is to replace existing pieces due to wear and tear. This means that if you are planning to invest in a new FHL, items that you’ll need in order to furnish your rental property will be a sunk cost that cannot be claimed as a tax-deductible expense against your profits.
• Any mortgage interest applicable to the property is now only subject to 20% tax relief. Prior to 2025 tax year, 100% of your mortgage interest payments were claimable as a business expense, but now, only 20% is allowed.
• FHL no longer qualifies as a business asset for those who sell a property and wish to claim Business Assets Disposal Relief (BADR). Previously, claiming BADR meant that any capital gains tax (CGT) liability incurred when disposing of the property is only subject to a 10% capital gains tax rate instead of 18% for basic rate taxpayers or 28% for higher and additional rate taxpayers. If you dispose of an FHL now (after 6 April 2025), you’ll instead be subject to the latest increased CGT rates which are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. BADR rates for qualifying assets have also since increased to 14% as of April 2025.
• Earnings made from your FHLs now do not count as relevant earnings. Relevant earnings are specific types of income that count towards your ability to make pension contributions which are eligible for tax relief. Currently, the maximum you can contribute to your pension fund and receive tax relief for is £60,000 a year or 100% of your relevant earnings if this is under £60,000.
• If you jointly own your FHL with your spouse, then income will now be jointly split 50:50 between the two of you regardless of ownership percentages. Whilst this may not be a big issue for all, for many, it was once advantageous to be able to choose for a lower rate taxpaying spouse to receive more income from the FHL than the higher rate taxpaying spouse. It is still possible to split income differently than 50:50 but to do this you must legally change your ownership share as well as complete additional forms for HMRC.

Have any special tax benefits for FHLs remained?

In general, FHLs are now treated in the same way as other types of rental property and rental income. One benefit that applies to both, however, is that income received from these are not subject to National Insurance (NI). However, if your only income is through these properties and you would like to receive state benefits such as the state pension, then we would advise that you make voluntary NI contributions.

What can be done to keep more FHL profits?

Although arguably no longer as profitable as they once were under the old furnished holiday lettings regime, holiday let income can still be lucrative. To retain as much profit as possible, you should still claim for all allowable expenses which are the same as ordinary landlord expenses. This would include any operational costs that you’ll already be used to claiming for such as cleaning fees or listing fees to advertise on rental property platforms like Airbnb.

Increasingly, buying investment property through a limited company is becoming the preferred option. Doing so allows you to reduce your tax liability as 100% of mortgage interest can be claimed by limited companies but not by private individuals. It also allows you to withdraw earnings through dividends instead of income which is charged at a lower tax rate. However, the drawback is, if you already own FHLs and want to transfer them into a limited company, you’ll suffer a host of taxes and charges from CGT, stamp duty land tax (SDLT) charge, as well as conveyancing fees. You should therefore consider your long-term plans carefully before doing so and seek out professional advice before proceeding.

Get help with income tax and capital gains on your holiday let property

Did you know that if you own FHL property that you may fall into the scope of Making Tax Digital for Income Tax Self Assessment which is due to come into force from April 2026? This will require you to keep digital records and complete quarterly tax submissions. If you’re struggling to keep on top of all the regulatory obligations and changes when it comes to your rental properties, then why not get in touch with us to see how we can help?