If you let a holiday cottage, the rules you'd built your numbers around have changed. The furnished holiday lettings (FHL) tax regime was abolished on 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax.
From those dates, a property that used to qualify as an FHL is taxed exactly like any other residential let. That affects what you can deduct, how your mortgage interest is relieved, and what you'll pay if you sell.
This guide explains what you can still claim, what's gone, and where the grey areas sit. It's written for individual landlords who own former FHLs personally. If you run yours through a company, some of the detail differs, so the calculations here are a starting point rather than personal advice.
What was a furnished holiday let?
An FHL was a property let on short-term, commercial holiday lets rather than to long-term tenants. Because HMRC treated it more like a trade than a passive investment, it carried tax advantages that ordinary lettings never had.
To qualify, a property had to meet annual occupancy conditions: available to let for at least 210 days, actually let commercially for at least 105 days, and not let to the same person for more than 31 continuous days on a regular basis (the "longer-term occupation" limit of 155 days). Landlords could use averaging and "period of grace" elections to keep qualification when a year fell short.
If you let through Airbnb, Vrbo or Booking.com, your property only counted as an FHL if it met those tests. The four big benefits were: full mortgage interest relief, capital allowances on furniture and equipment, certain Capital Gains Tax reliefs, and the treatment of profits as relevant earnings for pension contributions.
Why was the FHL regime abolished?
The abolition was announced at the Spring Budget on 6 March 2024 and took effect from April 2025. The stated aim was to level the playing field between short-term holiday lets and long-term residential lets, which were taxed less generously despite both being property businesses.
An anti-forestalling rule applied from 6 March 2024 to stop landlords using unconditional contracts to lock in the old Capital Gains Tax reliefs before the change. HMRC's policy paper sets out the detail. We'd point you to the official guidance rather than commentary, because the transitional rules are where most of the confusion sits.
The headline effect is simple: from 6 April 2025, income and gains from a former FHL form part of your ordinary UK (or overseas) property business and are taxed the same way as any other let.
What changed when FHL status ended?
Four things changed for former FHL landlords from 6 April 2025. This table summarises the position.
| Area | Under FHL rules (to 5 Apr 2025) | After abolition (2025/26 onwards) |
|---|---|---|
| Mortgage interest | Full deduction from rental income | Basic-rate (20%) tax credit only |
| Capital allowances | Available on furniture, equipment, fixtures | Not available; replacement of domestic items relief instead |
| CGT reliefs | Some trading-business reliefs could apply | Standard residential property rules apply |
| Pension contributions | Profits counted as relevant earnings | Property income is not relevant earnings |
None of these change overnight what the property earns. They change what HMRC lets you keep. For a mortgaged property held by a higher-rate taxpayer, the finance cost restriction is usually the biggest single hit.
What allowable expenses can you claim now?
The good news first: most day-to-day running costs are still deductible. As a residential property business, you can claim revenue expenses incurred wholly and exclusively for the letting. That includes:
- Repairs and maintenance that restore the property without improving it: fixing appliances, redecorating like-for-like, garden upkeep.
- Letting and platform fees: Airbnb, Vrbo and Booking.com commission, and property management fees.
- Insurance: buildings, contents, public liability and loss-of-income cover.
- Advertising and marketing: listing fees, professional photography, website costs.
- Professional fees: accountancy and letting-related legal costs (costs of buying or selling the property are capital, not revenue).
- Travel for the business: property visits for maintenance or management. If you use simplified mileage, HMRC's approved rates for 2025/26 are 45p per mile for the first 10,000 business miles in the year and 25p per mile after that (the first-10,000-mile rate rose to 55p from 6 April 2026).
- Council tax or business rates that you pay on the property.
- Replacement of domestic items relief: when a sofa, bed, washing machine or similar wears out, you can claim the cost of an equivalent replacement. This replaces capital allowances for these items.
The key shift is timing. Under FHL rules you could claim 100% relief on a new furniture purchase straight away through the Annual Investment Allowance. Now you get nothing on the original purchase and only claim later, when you replace a worn-out item.
Want help working out what's a repair versus an improvement, or whether to claim replacement relief now or later? Our property and landlord accounting team does this for holiday let owners every week.
Which expenses are now a grey area?
This is where former FHL landlords get caught out. Three categories were clearly allowable under FHL rules and are now less certain under ordinary residential letting rules.
- Utility bills. With a long-term tenancy, the tenant pays the utilities, so the landlord can't claim them. A holiday let is different: you include power, heating, water and broadband in the price because short-stay guests can't hold accounts in their own name. The test is whether the cost is wholly and exclusively for the business.
- Cleaning between guests. Long-term tenants clean their own home. For a holiday let, professional changeover cleaning is a genuine cost of running the business.
- Guest consumables. Welcome packs, toiletries, tea and coffee, washing-up liquid. These are the hardest to defend under ordinary letting rules.
HMRC has not published holiday-let-specific guidance on how the "wholly and exclusively" test applies to these costs after abolition, so treatment isn't black and white. In practice, the stronger your evidence, the more defensible your claim: all-inclusive pricing in your listings, booking records that show genuine short-term commercial lets, and a clear separation of any personal use.
The sensible approach is to claim what's genuinely a business cost, keep the records to back it up, and apportion anything that has a personal element. If you use the property yourself, you can only claim the commercial proportion of shared costs like insurance and utilities.
How are finance costs treated now?
This is usually the largest change. Under FHL rules you deducted 100% of your mortgage interest from rental income before working out tax. Now you can't.
Instead, you calculate your profit without deducting the interest, pay tax on that higher figure at your marginal rate, then receive a tax credit worth 20% of the lower of your finance costs or your property profits.
For a basic-rate taxpayer the maths roughly nets out. For a higher-rate taxpayer (40%) it doesn't: you're taxed at 40% but only relieved at 20%, so you lose 20 pence of relief on every pound of interest. For an additional-rate taxpayer (45%) the gap is wider still. The restriction can also push your taxable profit into a higher band, because the interest is no longer netted off first.
Some landlords look at incorporation, because a company still deducts mortgage interest in full against its profits. But transferring a property into a company can trigger Capital Gains Tax and Stamp Duty Land Tax, plus ongoing company costs, so it only stacks up in specific circumstances. It's a modelling exercise, not a default answer.
What are the Capital Gains Tax implications?
Under FHL rules, a qualifying property could access reliefs normally reserved for trading businesses, including Business Asset Disposal Relief (BADR) and business asset rollover relief. After abolition, a former FHL is simply residential property for CGT.
For disposals in 2025/26, the residential property CGT rates are 18% within the basic-rate band and 24% in the higher and additional bands. The annual exempt amount is £3,000 for 2025/26.
BADR still exists for genuine trading businesses, but the rate has been rising. The BADR rate is 14% for disposals in 2025/26 (from 6 April 2025) and 18% for 2026/27 (from 6 April 2026). The point for holiday let owners is that, post-abolition, a former FHL generally can't access BADR at all, so you're looking at the standard residential rates above.
If you ever lived in the property as your main home, Private Residence Relief may shelter part of any gain. These calculations get fiddly, so it's worth modelling before you sell.
How does this work in practice? A worked example
Illustrative example. Priya owns a holiday cottage personally and is a higher-rate (40%) taxpayer. Her figures are the same in both years: £40,000 rental income, £12,000 of running costs (insurance, cleaning, fees, repairs, council tax and the commercial share of utilities), and £9,000 of mortgage interest. In 2024/25 she also bought £5,000 of new furniture.
2024/25 (final year of FHL status):
- Income: £40,000
- Less running costs: £12,000
- Less mortgage interest (full deduction): £9,000
- Less capital allowances on furniture (Annual Investment Allowance, 100%): £5,000
- Taxable profit: £14,000
- Tax at 40%: £5,600
2025/26 (standard residential rules): she replaces nothing this year, so there's no replacement relief, and the new furniture from last year gets no further allowance.
- Income: £40,000
- Less running costs: £12,000
- Profit before interest: £28,000
- Tax at 40%: £11,200
- Less finance cost credit (20% of £9,000 interest): £1,800
- Net tax: £9,400
So Priya's tax bill rises from £5,600 to £9,400, an increase of £3,800, with no change to her income or how she runs the cottage. Most of that is the finance cost restriction and the loss of the upfront furniture relief. This is a simplified illustration; your own figures, personal-use apportionment and any replacement relief will change the result.
Do business rates rules change too?
No. FHL abolition was a tax change made by HMRC. Whether your property pays business rates or council tax is decided separately, by the valuation authorities, and those rules were not affected.
In England, a self-catering property is rated as a business if it was available to let commercially for at least 140 nights in the previous and current year, and actually let for at least 70 nights in the previous 12 months. In Wales, the thresholds are far higher: available for 252 nights and actually let for 182 nights. Scotland and Northern Ireland have their own rules.
If your property is on the rating list, small business rate relief may reduce or remove the bill depending on its rateable value. Whichever you pay, council tax or business rates, it's an allowable expense against your rental income. Keep booking records, because valuation authorities check occupancy claims closely.
Want to get your holiday let tax right?
The post-abolition rules reward landlords who keep clean records and claim defensibly, and they punish those who guess. Zmartly works with holiday let and other property owners to claim every allowable expense, handle the finance cost restriction correctly, and plan ahead for sales or incorporation.
Book a free 20-minute call with a Zmartly accountant through our tax advisory service, or run your numbers first with our self-employed and property tax calculator.
FAQs
What allowable expenses can I claim on a holiday let now?
You can claim repairs and maintenance, insurance, letting and platform fees, advertising, accountancy and letting-related legal fees, business travel, and council tax or business rates. You can also use replacement of domestic items relief when furniture or appliances wear out. Mortgage interest is no longer fully deductible; you get a 20% tax credit instead.
When was the furnished holiday lettings regime abolished?
It was abolished on 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. It was announced at the Spring Budget on 6 March 2024, and an anti-forestalling rule for certain CGT reliefs applied from that announcement date.
Can I still claim capital allowances on holiday let furniture?
No. From 6 April 2025 you can't claim capital allowances on furniture, fixtures or equipment for a former FHL. Allowances claimed before then remain valid, and existing pools could continue under transitional rules. For new and replacement items you now use replacement of domestic items relief, which only covers the cost of replacing a worn-out item, not the original purchase.
Are utilities and cleaning still deductible on a holiday let?
They can be, but they're less certain than under the FHL regime. The test is whether the cost is wholly and exclusively for the letting business. Because you provide utilities and changeover cleaning as part of a short-term let, there's a genuine business case, but HMRC hasn't issued holiday-let-specific guidance. Keep records of all-inclusive pricing and bookings, and apportion for any personal use.
How is my mortgage interest treated on a former FHL?
You calculate profit without deducting the interest, pay tax on that figure, then get a tax credit worth 20% of the lower of your finance costs or property profits. Basic-rate taxpayers are broadly unaffected; higher and additional-rate taxpayers pay more because relief is capped at 20%.
Do I still pay business rates on my holiday let after abolition?
Business rates eligibility didn't change. In England you generally pay business rates if the property was available to let for at least 140 nights and actually let for at least 70 nights; in Wales the thresholds are 252 and 182 nights. Otherwise you pay council tax. Either way, the charge is an allowable expense.
