If you own and rent out a furnished holiday property, it’s time to take note. From April 2025, the current Furnished Holiday Lettings (FHL) tax regime is being scrapped — and with it, several generous tax advantages.
These changes could affect everything from your pension planning to how much tax you pay when you sell a property. Here’s a plain-English breakdown of what’s changing, and how to prepare.
What’s actually changing?
From April 2025, FHL properties will no longer be treated as a separate category. Instead, they’ll be lumped in with the rest of your UK or overseas property business. This shift means that FHLs will now be taxed under the same rules as standard residential lettings — whether you’re a private landlord, limited company, or a trust. So what does that actually mean in practice?
1. Pension contributions will be affected
At the moment, profits from furnished holiday lets can count towards your relevant UK earnings, meaning you can pay more into your pension and get tax relief. After April 2025, that’s no longer the case. This could limit your pension contributions if your main income comes from holiday lets.
2. Mortgage interest relief changes
As with other residential lettings, you’ll only be able to claim Income Tax relief on finance costs (like mortgage interest) at the basic rate of 20%. This is a big shift for landlords who’ve been claiming full relief under the current FHL rules.
3. Capital allowances scrapped
Currently, landlords can claim capital allowances on things like furniture and equipment. That benefit’s going too. Instead, relief will only be available on the replacement of certain domestic items — a more limited and less generous rule.
4. Capital Gains Tax reliefs withdrawn
Perhaps the most impactful change: the FHL regime currently treats furnished holiday lets as a trade, meaning you can access various Capital Gains Tax reliefs like:
- Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)
- Roll-over relief for reinvesting in another qualifying business asset
From April 2025, these will be withdrawn — unless you qualify for specific transitional provisions. If you’re planning to sell or reinvest, timing is key.
5. Losses can still be carried forward
There’s some good news here. Any unused losses from your FHL business can still be carried forward and offset against future profits from your UK or overseas property business (depending on where the original income came from).
What should landlords be doing now?
If you let out furnished holiday properties, now’s the time to step back and look at the bigger picture. These changes could alter your cash flow, retirement plans, and investment strategy. You might want to ask:
- Should I sell before the rules change?
- How will this affect my pension contributions?
- Will the change to interest relief impact my profit margins?
- Can I make the most of any transitional reliefs?
It’s not all doom and gloom, but it is time to get proactive.
Not sure how this affects you?
We know tax changes like this can feel overwhelming — especially if your property is a key part of your income. If you’re unsure what the changes mean for your specific situation, our friendly, expert team at Harland is here to help. Get in touch and we’ll talk you through your options and help you plan ahead with confidence.
Alternatively, visit the government’s website for further details about the Furnished holiday lettings tax regime abolition
