April 27, 2026

Tax rules for furnished holiday lettings in the UK explained (2026 update)

Introduction

The UK’s furnished holiday let (FHL) tax regime offered generous reliefs to holiday‑home owners who met strict criteria. As of 6 April 2025, the regime has been abolished and properties are taxed like other residential lettings. This post explains the previous criteria, the benefits that have been removed and what tax reliefs remain available.

Former qualifying criteria

To qualify as an FHL under the old regime, a property had to:

  • Be located in the UK or another European Economic Area country and be furnished for normal occupation.
  • Be commercially available to the public for at least 210 days a year and actually let for 105 days.
  • Not be let to the same person for more than 31 consecutive days in total exceeding 155 days, known as the “pattern of occupation” condition. Longer stays due to unforeseen circumstances (such as illness or travel delays) were allowed.
  • If these conditions weren’t met, owners could use averaging or period‑of‑grace elections to keep FHL status.

Tax benefits under the old regime

Until its abolition, FHL status unlocked several tax advantages:

  • Capital Gains Tax relief. Qualifying FHLs could access Business Asset Disposal Relief (10 % CGT rate), rollover relief and gift hold‑over relief.
  • Capital allowances. Owners could claim tax relief on the cost of furniture, fixtures and fittings, reducing taxable profits.
  • Full mortgage interest relief. Finance costs such as mortgage interest were fully deductible.
  • Trading income status. Profits counted as relevant earnings, enabling pension contributions and flexible loss relief.

Abolition of the FHL regime

In the Spring Budget 2024, the UK government announced it would abolish the FHL regime from April 2025, a policy subsequently confirmed by the incoming government. From 6 April 2025 (1 April 2025 for companies), income and gains from furnished holiday lettings are now treated like those from regular rental properties. Key changes include:

  • Mortgage interest restriction. Finance costs are now restricted to the basic rate of income tax.
  • No capital allowances. Expenditure on furniture and fixtures cannot be deducted as capital allowances; instead, you may claim “replacement of domestic items” relief.
  • Loss of CGT reliefs. Business Asset Disposal Relief, rollover relief and gift/hold‑over relief are no longer available.
  • Pension contributions. FHL profits no longer count as relevant earnings for tax‑relieved pension contributions.

What tax reliefs still apply?

Although the FHL regime has ended, holiday‑let owners can still benefit from several tax‑efficient deductions under the general property‑income rules:

  • Deductible expenses. Costs such as cleaning, maintenance, insurance, utilities, advertising, agent fees and repairs can be deducted from rental income.
  • Mortgage interest relief at 20 %. Finance costs attract a basic‑rate tax credit.
  • Pre‑letting expenses. Certain costs incurred up to seven years before letting (e.g., decorating or advertising) may be deductible.
  • Small business rate relief. If your property is assessed for business rates and meets certain criteria, you may be eligible for small business rate relief.

Reporting your income

You must report rental profits to HMRC via a Self Assessment tax return. If you’re new to letting, register for Self Assessment by 5 October following the end of the tax year in which your letting starts. Profits are calculated as rental income minus allowable expenses; pre‑letting costs and business rates relief should be included where applicable.

Conclusion

The abolition of the FHL regime removes several attractive tax benefits, but holiday‑let owners can still offset many expenses and benefit from reduced finance‑cost relief. Keep accurate records, seek professional advice and ensure you meet your reporting obligations.