Holiday let tax after the FHL rules ended.

Worked example · holiday let owned personally, higher-rate taxpayer	Amount
Income tax under the FHL rules, 2024-25	£4,800
Income tax under the current rules, 2025-26 and 2026-27	£6,400
Income tax at the new property rates, from 2027-28	£6,640

The example assumes £20,000 of profit before mortgage interest, £8,000 of mortgage interest, the same figures each year, and that all of the profit is taxed at the higher rate in England. The jump in the second row is the change to mortgage interest relief, explained below. The third row adds the new property rates from April 2027.

What the old regime was

Until April 2025, a furnished holiday let that met three tests each year was taxed as a furnished holiday letting (FHL). It had to be available to let as holiday accommodation for at least 210 days. It had to be let commercially for at least 105 days. And lets of more than 31 continuous days couldn't add up to more than 155 days.

An FHL was treated much like a trade. That gave it four advantages over an ordinary rental: full relief for mortgage interest, capital allowances on furniture and fixtures, the capital gains reliefs available to traders, and profits that counted as earnings for pension tax relief.

When it ended

The regime ended for tax years starting on or after 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax. Holiday let income is now part of your ordinary property business and follows the same rules as a long let.

2025-26 is the first full tax year under the new rules. The online Self Assessment return for it is due by 31 January 2027.

Mortgage interest

If you own a holiday let personally, you can no longer deduct mortgage interest from your rental profit. Instead you get a tax credit of 20% of the interest, the same rule that applies to other residential landlords. For a basic-rate taxpayer the relief is worth about the same, unless adding the interest back to your taxable income takes you into the higher rate band. For a higher or additional rate taxpayer in England, Wales or Northern Ireland, relief that was worth 40% or 45% is now worth 20%.

The credit is 20% of the lowest of three figures: your finance costs, your property profits, and your income above the personal allowance, not counting savings and dividend income. Interest that isn't relieved in one year carries forward.

From 6 April 2027, property income is taxed at 22%, 42% and 47% for taxpayers in England and Northern Ireland, and the credit rises to 22%. Scotland and Wales can set their own property rates. Property income tax from 2027 explains the new rates.

Companies were never subject to this restriction, so a company's treatment of interest hasn't changed.

Furniture and capital allowances

Under the FHL rules you could claim capital allowances on furniture, furnishings and fixtures. Since April 2025, new spending on them gets no capital allowances.

Spending already in a capital allowances pool by 5 April 2025 keeps its writing-down allowances until the pool is used up or you make a small pool claim.

Replacements now come under replacement of domestic items relief. It lets you deduct the cost of replacing furniture, furnishings, appliances and kitchenware. It doesn't cover the first purchase when you furnish a property, or fixtures such as baths, toilets and fitted wardrobes.

Selling or giving away a former holiday let

Gains are now taxed like gains on any other let residential property. For an individual in 2026-27, that's 18% on gains within your basic rate band and 24% above it, after a £3,000 annual exempt amount.

The trading reliefs have gone. Business Asset Disposal Relief, which taxes qualifying gains at 18% in 2026-27, no longer applies. Nor does rollover relief, for reinvesting a gain in a new business asset, or gift relief, for passing an asset on and deferring the gain.

There's a narrow exception. If the holiday let business actually ceased before 6 April 2025, Business Asset Disposal Relief may still apply to a sale within three years of the cessation. The end of the FHL rules doesn't by itself count as the business ceasing. An anti-forestalling rule can also deny the old reliefs on contracts made from 6 March 2024 that completed after the regime ended.

Any Capital Gains Tax on UK residential property is reported and paid within 60 days of completion. If you live outside the UK, you must report every sale of UK property within 60 days, even if there's no tax to pay.

Losses, pensions and joint owners

Losses carried forward from a UK holiday let are now treated as losses of your ongoing UK property business. You can set them against profits from your other UK lets, not just the holiday let.

Holiday let profits no longer count as relevant UK earnings for pension tax relief. Relief on your own pension contributions is limited to 100% of your annual earnings, and those profits no longer count towards that limit.

If you own a holiday let with your spouse or civil partner, the profits are now split equally for tax. The exception is where you own it in unequal shares and tell HMRC, on Form 17, that the split should follow your shares. The form must reach HMRC within 60 days of your declaration.

What didn't change

These rules apply to UK holiday lets whether or not you live in the UK. For the rest of the picture, read UK property tax for overseas investors.

Day-to-day running costs, such as cleaning, management and platform fees, are still deductible.

Business rates are separate. In England, a self-catering property pays business rates instead of council tax if it's available to let for short periods totalling 140 nights or more in the previous and current year, and actually let for 70 nights or more in the previous 12 months. Those tests have applied since 1 April 2023.

What it means for the numbers

A holiday let now sits on the same tax footing as a long let, so the comparison comes down to income, occupancy and running costs. The investor calculator compares a long let and a short let on the same property, before tax, with mortgage interest on its own line. An accountant can work out the tax on your own figures.

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