Furnished Holiday Lettings Tax Changes: What Landlords Actually Lost

If you own a holiday let, a cottage, a cabin, a seaside flat you rent out short term, the tax rules changed under you in April 2025, with no transition period to ease you in. If you or your accountant have not properly reviewed what this means, this guide walks through it in plain English.

What was the Furnished Holiday Lettings regime, in simple terms?

Before April 2025, if your holiday let met certain occupancy conditions, HMRC treated it more like a trading business than an ordinary rental property. That came with real tax perks: full mortgage interest relief, generous capital allowances on furniture and equipment, a much lower tax rate when you sold the property, and the ability to count the income toward your pension.

To qualify, your property needed to be:

• Available for letting for at least 210 days a year
• Actually let commercially for at least 105 days a year
• Not occupied by the same person for more than 31 consecutive days for more than 155 days of the year

If you met those tests, you got the special treatment. From 6 April 2025, none of that matters anymore, the special regime is gone entirely, and there was no transitional grandfathering written into the legislation.

What changed, in plain English

1. You lose full mortgage interest relief

Before: you could deduct the full cost of mortgage interest from your holiday let profit before working out your tax.

Now: holiday lets follow the same rule as every other residential landlord. Higher and additional rate taxpayers no longer get a full deduction, instead, you get a basic rate (20%) tax credit on your finance costs. For anyone with mortgage debt on their holiday let, this is usually the single biggest financial hit from the change, your taxable profit is now calculated as if the interest were not deductible at all, then you claim a flat 20% credit back at the end. If you are a higher rate taxpayer, that is a real cash cost compared to before.

2. You lose the cheaper tax rate when you sell

Before: selling a qualifying holiday let could qualify for Business Asset Disposal Relief, a reduced 10% Capital Gains Tax rate (rising over time as the rate itself changed), on up to £1 million of lifetime gains.

Now: holiday lets are sold under the same rules as any other rental property. For 2026/27, that means Capital Gains Tax at 18% (if the gain falls within your basic rate band) or 24% (if it falls in the higher rate band), with a £3,000 annual tax free allowance. Business Asset Disposal Relief is no longer available on a holiday let disposal at all, since it is no longer treated as a business asset for this purpose.

3. You lose capital allowances on furniture and equipment

Before: you could claim capital allowances (a form of tax relief spread over time) on the actual cost of furniture, kitchen equipment, and fittings you bought for the property.

Now: like other residential landlords, you generally cannot claim capital allowances on furniture at all. You may still be able to claim a "replacement of domestic items" relief when you actually replace something (not when you first buy it), which is narrower and only kicks in on replacement, not initial purchase.

4. You lose the ability to count the income for pension purposes

Before: profit from a qualifying holiday let counted as "relevant earnings" for pension contribution purposes, letting self-employed-style landlords make tax-relieved pension contributions based on that income.

Now: ordinary rental income does not count as relevant earnings for pension contributions. If you were using holiday let profit to justify larger pension contributions, that route has closed.

5. The 50:50 rule for married couples and civil partners

This is the change almost nobody warns people about. Married couples and civil partners who jointly own property are normally taxed on rental profit on a strict 50:50 basis, regardless of who actually does the work or how ownership is split, unless they formally elect otherwise.

Under the old FHL rules, couples had more flexibility to split profits unevenly to reflect real effort or a more tax-efficient split between their two incomes. That flexibility disappeared with the regime. If you were relying on an uneven split, you may now need a formal Form 17 declaration, alongside genuinely unequal beneficial ownership of the property itself, to preserve anything other than a 50:50 split. This often means legal paperwork changing who owns what share of the property, not just a form, worth addressing proactively rather than after the fact.

What you can still claim

It is not all bad news. A few things survived the change:

• Ordinary allowable expenses still reduce your taxable profit, cleaning, insurance, letting agent fees, utility bills, repairs (as distinct from improvements), and so on, exactly as for any other rental property
• Losses accumulated under the old FHL rules can now be used more flexibly. Previously, FHL losses could only be offset against future FHL profits. Now, those historic losses can be set against your ordinary property income too, which genuinely helps anyone who had a mix of holiday lets and standard rentals

What this actually means for your tax bill

For a leveraged holiday let (one with significant mortgage debt), the combined effect of losing full interest relief and facing standard CGT rates on eventual sale can mean a materially higher tax bill than before, sometimes enough to change whether the numbers still work at all.

For an unleveraged or lightly-leveraged holiday let (little or no mortgage), the impact is smaller, since the interest relief change matters less, though the loss of capital allowances and the pension angle still apply.

The first Self Assessment return filed entirely under the new rules covers the 2025/26 tax year, due by 31 January 2027. If this is your first return since the change, this is exactly the year to review your position properly rather than assuming last year's approach still works. See our Self Assessment and MTD ITSA guide for the wider filing deadlines and digital record-keeping rules that apply alongside this.

How Books & Returns helps

This is exactly the kind of change where the details matter more than the headline. Whether you have mortgage debt, joint ownership, historic losses to carry forward, or you are planning a sale, the right approach genuinely differs by situation. We review your specific holiday let position against the post-2025 rules, help structure joint ownership correctly where a Form 17 election makes sense, and make sure you are not paying more tax than you need to under the new regime.

This guide is for general information only and does not constitute tax advice. Property tax rules depend on your specific circumstances, always confirm your position with a qualified accountant before making decisions based on this content.