There were some significant changes last year for those owning and operating furnished holiday lettings (FHL). From April 2025, the FHL tax regime will be abolished, reshaping how these properties are treated for tax purposes. Here is a comprehensive overview of what this means for property owners and how to prepare for the upcoming changes.
From the 2025/26 tax year, FHL properties will no longer benefit from their distinct tax status. Instead, they will follow the same rules as other UK or overseas property businesses. This change will impact individuals, corporations, and trusts operating or selling FHL accommodations.
The abolition of the FHL regime introduces several critical changes:
1. Pension contributions
Income from FHL properties will no longer count as relevant UK earnings for calculating maximum pension relief. This could significantly impact the pension planning strategies of property owners relying on FHL income for tax-efficient pension contributions.
2. Dwelling-related loans
Landlords will face restrictions on income tax relief for residential property finance costs. Relief will be capped at the basic rate of 20%, potentially increasing the overall tax liability for property owners.
3. Replacement of domestic items
Capital allowances on new plant and machinery will no longer be available. Instead, landlords can claim relief only on the replacement of certain domestic items, subject to transitional rules. This change could affect the budgeting for property upgrades and maintenance.
4. Capital gains tax
FHL properties will no longer qualify for favourable capital gains tax (CGT) rules. Key changes include:
- Withdrawal of roll-over relief: Roll-over relief on the replacement of business assets will not apply to acquisitions made after 6 April 2025 (or 1 April 2025 for Corporation Tax).
- Impact on business asset disposal relief: While transitional rules will preserve some reliefs, the overall scope for CGT savings will narrow.
5. Losses
Unused losses from FHL activities can still be carried forward. However, they must be offset against profits from either UK or overseas property businesses, as appropriate. This restricts flexibility in loss utilisation.
The abolition of the FHL tax regime marks a significant shift for property owners. While these changes will undoubtedly bring challenges, early preparation and informed decision-making can help minimise disruption and optimise outcomes.
If you have furnished holiday lets and you would like any support, contact us by calling 01623 490 120 or email