The Furnished Holiday Lettings (FHL) tax regime, which for years gave holiday-let owners in the UK a set of trader-style tax breaks, was abolished from 6 April 2025 for individuals (1 April 2025 for companies). If you own a static caravan, lodge or holiday home you let out, this is very likely the single biggest change to your tax position in years, and a lot of advice still circulating online, including, until this update, our own, predates it. Here's what actually changed, and what you pay now.
Key takeaways
- The Furnished Holiday Lettings (FHL) tax regime, which gave holiday-let owners trader-style tax breaks, was abolished from 6 April 2025 for income tax and Capital Gains Tax, and 1 April 2025 for corporation tax.
- Holiday-let income is now taxed the same way as any other residential letting income, not as a business.
- Mortgage interest relief is now a 20% tax credit, not a full deduction, a real cut for higher and additional-rate taxpayers.
- Business Asset Disposal Relief and rollover relief on gains no longer apply to holiday lets; standard residential Capital Gains Tax rates apply instead.
- Full capital allowances have gone. You can generally still claim for replacing domestic items like furniture and white goods, and allowances already claimed under the old rules continue on their existing schedule.
- FHL profits no longer count as relevant earnings for pension contribution tax relief.
What changed, and when
Until April 2025, a qualifying Furnished Holiday Let got a set of tax advantages ordinary residential landlords didn't: full mortgage interest deductibility, capital allowances on furniture and equipment, and access to some Capital Gains Tax reliefs normally reserved for trading businesses. The government abolished this regime in the Spring Budget 2024 and it took effect from 6 April 2025 for individuals (1 April 2025 for companies).
How your rental income is taxed now
Holiday-let income is taxed as property income, the same category as a normal buy-to-let, not as a trade. The practical differences that matter most:
- Mortgage interest: under the old FHL rules, holiday-let owners could deduct mortgage interest in full from rental income before tax, a benefit ordinary residential landlords never had. That's gone. Holiday lets are now treated the same as any other let: instead of a full deduction, you get a 20% tax credit on the interest paid. If you pay tax at 40% or 45%, that's a real cut in relief compared with the old regime.
- Capital allowances: gone for new spending. You can still generally deduct the cost of replacing domestic items, furniture, white goods, kitchenware, under the standard replacement of domestic items relief that applies to all residential lets. If you'd already built up a capital allowances pool under the old FHL rules, that continues on its existing writing-down schedule rather than being cancelled outright, but no new claims of that kind can start.
- Losses: property income losses can typically only be carried forward against future property income, not offset against other income, standard residential letting treatment.
How a sale is taxed now
If you sell a holiday-let property, standard residential Capital Gains Tax rules now apply; the current higher residential rate is 24%. Business Asset Disposal Relief, which used to tax the first £1 million of qualifying gains at 10%, no longer applies to these properties. Rollover relief, which let you defer a gain by reinvesting in another qualifying asset, is also gone, with anti-forestalling rules blocking claims on contracts exchanged after 6 March 2024 that complete after the change took effect.
One separate point worth knowing if your holiday accommodation is a static caravan rather than a bricks-and-mortar building: caravans that remain genuinely mobile, rather than permanently connected to services and fixed on a pitch, can sometimes qualify for a different CGT exemption as a "wasting chattel." This is decided by HMRC on the specific facts and doesn't apply to most sited, serviced holiday homes. Don't assume it applies to yours without checking.
Pensions
Profit from letting no longer counts as relevant UK earnings for the purpose of getting tax relief on pension contributions. If part of your retirement planning assumed holiday-let profit would support pension contributions in the same way as trading income, that assumption no longer holds.
What to do next
- Get your accountant to confirm how your specific letting arrangement is now taxed, this guide explains the general shift, not your individual figures.
- Check HMRC's current guidance directly before filing, since implementation detail (particularly around transitional capital allowances) has continued to be refined since the change took effect.
- If you were relying on FHL status for a pension strategy or a planned sale, get that plan reviewed now rather than at the point of filing or completion.
The advantage of purchasing a non-brick built structure for a holiday let is, of course, the cost. For example, you can purchase a holiday home in the Lake District at a fraction of the price you would pay for a traditional brick-built home. For further reading, see our article on what to remember when buying a holiday home.
Sources: Deloitte, BDO, House of Commons Library. This guide explains the general position; it isn't personal tax advice, always check your own figures with an accountant.