Furnished Holiday Lettings abolished: what changed for UK hosts in 2025-2026

Paolo Vezzola

Founder · Vezpa PMS · Profile →

The Furnished Holiday Lettings (FHL) tax regime in the United Kingdom was abolished with effect from 6 April 2025. Announced in the Spring Budget 2024 and confirmed in late 2024, the abolition removes the special tax treatment that UK holiday let owners had enjoyed for decades. From the 2025-26 tax year, holiday let income is generally taxed under the same rules as ordinary residential property income. For higher-rate taxpayers with mortgaged properties, this can be a material reduction in after-tax profit. Making Tax Digital for Income Tax is also expected to apply to many sole traders and landlords, with phased thresholds.* In this guide I outline what changed, what it may mean for your tax bill, and how to organise your bookkeeping.

What the FHL regime was, and why it mattered

The Furnished Holiday Lettings regime was a special set of UK tax rules that treated qualifying holiday lets as a "trade" rather than as ordinary property income. To qualify, the property had to be:

• Available for letting on a commercial basis for at least 210 days per year
• Actually let for at least 105 days per year
• Let on a short-term basis, with average lettings of no more than 31 days (any single letting longer than 31 days didn't count toward the 105-day total, unless capped at 155 days for "long-term occupation")

Properties that met these conditions enjoyed several significant tax advantages:

• Full mortgage interest deduction against rental profit, instead of the 20 % basic-rate tax credit imposed on ordinary residential lets in 2017-2020
• Capital allowances on furnishings, fittings and integral features (heating systems, lighting, kitchens)
• Capital Gains Tax reliefs: Business Asset Disposal Relief (10 % CGT on sale instead of 18-24 %), rollover relief, and gift holdover relief
• Pension contribution relief: FHL income counted as "relevant earnings" for personal pension contributions
• Profit splitting between spouses or civil partners regardless of legal ownership shares

For someone with a heavily mortgaged holiday cottage in Cornwall earning £30,000 in annual rental income with £20,000 of mortgage interest, the difference between FHL treatment and ordinary property treatment is the difference between a manageable tax bill and a brutal one. That's why the abolition has been the single most-discussed regulatory change in the UK holiday let community since 2017.

What changed on 6 April 2025

From 6 April 2025 (1 April 2025 for limited companies), the FHL rules were repealed in their entirety. Holiday let income is now treated as ordinary UK Property income for tax purposes. The key consequences:

Transitional rules to be aware of

Capital allowances pool continues

If you had FHL capital allowances claimed before 6 April 2025, the existing capital allowance pool continues. You can still claim writing-down allowances on the existing pool against post-2025 property income. What you cannot do is claim new capital allowances on furniture or fittings purchased after 6 April 2025 — those fall under the "replacement of domestic items relief" instead, which is more limited.

Loss relief

FHL losses brought forward at 5 April 2025 can be offset against any UK Property income (not just FHL income) in 2025-26 and later years. This is more flexible than the previous FHL rules, which only allowed losses to be offset against other FHL income.

Anti-forestalling rules

The government included anti-forestalling rules to stop owners from accelerating disposals between the announcement (March 2024) and the effective date (April 2025) just to lock in BADR. If you sold your FHL between 6 March 2024 and 5 April 2025, special rules apply — talk to your accountant about whether your sale was caught.

Making Tax Digital for Income Tax — from 6 April 2026

Alongside the FHL repeal, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is being phased in for sole traders and landlords from April 2026 onwards. Indicative highlights (subject to change by HMRC):

• From April 2026 (indicative): sole traders and landlords with combined gross self-employment and property income above approximately £50,000*
• From April 2027 (indicative): those with combined gross income above approximately £30,000*
• From April 2028 (indicative): those with combined gross income above approximately £20,000*
• What you may need to do: keep digital records and submit quarterly summaries to HMRC using compatible software, plus a final declaration after the tax year
• Quarterly deadlines: typically 7 August, 7 November, 7 February, 7 May (for the standard tax-year quarters)*
• Final declaration: 31 January after the tax year end (same as current Self Assessment deadline)
• Penalties: a points-based late submission regime is being introduced; specific amounts may change

"Compatible software" means software that HMRC has formally recognised as MTD-compatible. The list includes both full accounting packages (Xero, QuickBooks, Sage, FreeAgent) and dedicated MTD bridging tools. A PMS that doesn't produce an MTD-compatible export forces you to keep a parallel spreadsheet just for the quarterly submission.

Business rates vs council tax: still relevant in 2026

The FHL repeal does not affect business rates eligibility. The thresholds for business rates instead of council tax still apply, and they vary across the four nations of the UK:

If your property meets the threshold, it goes onto the business rates list (with the Valuation Office Agency in England and Wales, or the Scottish Assessors Association in Scotland). For most holiday lets with a rateable value below £12,000, Small Business Rate Relief reduces the bill to £0. Below £15,000 you get tapered relief. Properties on business rates also typically qualify for energy rebates and certain other reliefs.

The Welsh threshold is one of the strictest in the UK, introduced to discourage second-home holiday lets. Owners in Wales who don't meet the threshold typically pay council tax — and many Welsh councils may apply significant surcharges for second homes. Exact rules vary by council.

Practical organisation for the 2025-26 tax year

Here's a practical checklist for what you should be doing in 2026 if you own a UK holiday let:

1. Get a clean record of 2024-25 closing position: the last year your FHL was treated as a trade. This includes capital allowances pool balance, brought-forward losses, BADR lifetime cap usage. Your accountant needs this to handle the transition correctly.
2. Restructure your bookkeeping to feed into the SA105 UK Property pages format, not the SA103S/SA103F self-employment format. The categories are different.
3. Track days available and days actually let for business rates purposes. This is independent of the FHL repeal but still matters for the rates / council tax decision.
4. Check if you're in scope for MTD ITSA from April 2026: combined gross income from self-employment + property over £50,000 in 2024-25?
5. Choose MTD-compatible software if you are in scope. Options include Xero, QuickBooks, Sage, FreeAgent, plus dedicated bridging tools.
6. Talk to your accountant about whether to incorporate. Some higher-rate landlords are considering moving the property into a limited company, which avoids the mortgage interest restriction (because companies still get full deduction). It's not a free lunch — SDLT on transfer, possible CGT on incorporation, ongoing corporation tax — but for some it's the right move.
7. Review your mortgage. Some holiday let mortgages have terms that depend on FHL status (which no longer exists). Talk to your lender before April 2026 to make sure you're not in technical default.

What a good PMS does for you in 2026

A PMS that's properly aware of the post-FHL regime should at minimum:

None of this is rocket science, but most international PMS solutions don't do it because they're built for global vacation rental markets and not for the specific UK tax structure. The result is that owners end up with a PMS for booking management and a separate spreadsheet (or Xero) for bookkeeping — with all the duplication and reconciliation pain that implies.

Frequently asked questions

Should I incorporate my holiday let now that FHL is gone?

It depends. Limited companies still get full mortgage interest deduction (because the restriction only applies to individuals, not corporates). For higher-rate taxpayers with significant mortgages, incorporation can save several thousand pounds per year. But you have to weigh it against the costs: SDLT on the property transfer (often the biggest single cost), CGT on incorporation (some reliefs available), corporation tax on profits, and ongoing accounting fees. Talk to a specialist accountant before deciding.

Does the FHL repeal affect VAT?

No. VAT on holiday let income is unchanged by the FHL repeal. Holiday accommodation is standard-rated (currently 20 % UK VAT) above the VAT registration threshold (which has been around £90,000 in recent years, subject to change). Below the threshold VAT registration is generally not required. Confirm current thresholds and rates with HMRC.

Can I still claim cleaning and laundry costs?

Yes. Cleaning, laundry, ground maintenance, utilities, insurance, marketing, channel manager fees, accountancy fees and similar expenses are all allowable deductions against UK Property income. The FHL repeal didn't change which expenses you can deduct — it only changed the treatment of mortgage interest and capital allowances.

What if my property qualified as FHL in 2024-25 but doesn't now?

The FHL conditions (210 / 105 days) no longer apply because the regime no longer exists. From 6 April 2025 you don't need to meet any letting threshold for tax purposes — your income is just UK Property income regardless. The 140 / 70 day threshold for business rates in England is separate and continues to matter.

Do I still need to file self-assessment if my income is under £50,000?

Yes. Self-assessment filing is unchanged. The indicative £50,000 threshold applies to MTD ITSA (the digital quarterly reporting requirement), not to Self Assessment itself. If you're below that threshold you normally continue to file annually as before.

What's the deadline for the first MTD ITSA quarterly submission?

For the standard tax-year quarters (Q1 = 6 April to 5 July), the first quarterly deadline is 7 August 2026. You then have submissions due 7 November 2026, 7 February 2027 and 7 May 2027, plus the final declaration by 31 January 2027.

Conclusion

The Furnished Holiday Lettings repeal is the most significant change in UK holiday let taxation in two decades, and it has hit higher-rate owners with mortgaged properties hardest. Combined with Making Tax Digital from April 2026 and the existing patchwork of business rates thresholds in England, Wales and Scotland, the practical effect is that running a holiday let now requires more bookkeeping discipline than ever. The good news is that the same discipline pays off: clean records produce smaller accountancy bills, faster MTD submissions and a defensible position if HMRC asks questions.

The bad news is that many general-purpose PMS solutions weren't built with these UK-specific requirements in mind. Choose a PMS that tracks days available and let, categorises expenses in HMRC format, and produces an MTD-compatible quarterly export — otherwise you may be doing manual data entry multiple times a year.

Disclaimer: this guide is for general information only and does not constitute tax or legal advice. Exact thresholds, dates and penalties can change. Main sources: HMRC guidance and manuals (gov.uk); Finance (No. 2) Act 2024 and subsequent Finance Acts; Valuation Office Agency and Scottish Assessors Association for business rates; Welsh Government guidance for Wales. For your specific situation, consult a qualified accountant or tax adviser.