If you own a holiday let, it’s not just the guests keeping you on your toes this year—HMRC has rolled out some of the biggest holiday let tax changes in years. Thanks to the Spring Budget 2024 and Autumn Budget, the way income from furnished holiday lets and property businesses is taxed has been turned on its head.
The rulebook for claiming reliefs, offsetting costs, and even planning your next big investment just got a dramatic rewrite. Here’s what’s changed for 2025, what it means for holiday let owners, and the practical moves to make now—so your next tax return doesn’t come with a plot twist.
📋 KEY UPDATES FOR 2025
FHL regime scrapped: From April 2025, furnished holiday lets are taxed like standard residential properties.
CGT reliefs removed: BADR and rollover relief no longer apply to holiday let sales—regular CGT rules now apply.
Mortgage interest relief cut: Only a 20% basic rate tax credit is allowed, raising tax bills for many owners.
What is a furnished holiday let—and why were the rules different?
Not every Airbnb, cottage, or coastal escape counts as a “furnished holiday let” (FHL) for tax purposes. To qualify under the FHL rules, your property had to be:
- Fully furnished
- Available for short-term letting to the public at least 210 days a year
- Actually let as a holiday accommodation for at least 105 days
Anything less, and HMRC would simply treat it as a standard rental property.
Why jump through all those hoops? Because FHLs got a raft of tax perks that standard rental properties could only dream of, including:
- Capital allowances for furniture and equipment.
- A lower tax rate on certain profits (thanks to business asset disposal relief).
- The ability to deduct full mortgage interest.
- Unique treatment for replacement of domestic items relief.
- Even a shot at more generous pension contributions.
Ownership structure mattered, too. Individuals often got more flexible income tax treatment and pension options, while holding your FHL through a limited company brought it under the corporation tax regime—with all the planning opportunities (and headaches) that come with it.
In short: If you met the FHL criteria, your holiday let business was a tax VIP. But 2025 brings a whole new set of rules to the party.
The 2025 holiday let tax changes
Big changes are landing for holiday let owners—whether you run a single cottage or a mini-empire of guest-ready getaways. The perks that once set FHLs apart are vanishing, and the tax landscape now looks very different for everyone in the business.
Here’s a breakdown of the headline changes—what’s out, what’s in, and exactly how each shift could hit your bottom line:
1. Abolition of the FHL regime
The biggest shake-up for holiday let owners in 2025 is the total abolition of the furnished holiday lettings tax regime. If your property previously met FHL eligibility under the current rules, you’ll see a dramatic change in your tax benefits from this year onward.
Before:
Owning a qualifying FHL property meant generous tax benefits under the FHL regime—full mortgage interest relief, capital allowances for kitting out your holiday let, special CGT reliefs, and bigger pension contributions. The furnished holiday lettings tax regime put holiday lets in a league of their own.
After:
From April 2025, FHL properties lose their privileged status. All holiday lets are now taxed as standard rental properties, with the special tax benefits of the old regime scrapped.
How it affects you:
No more FHL-specific perks—so higher tax bills for many, tighter rules on deductions, and a need to rethink your property’s long-term profitability. Company owners and individuals alike will feel the impact, with both income tax and corporation tax strategies needing a fresh look.
📌 Pro Tip: If your holiday let business was built on FHL tax breaks, don’t wait until year-end to run the numbers. Model your future profits (and tax bills) under the new regime and get tailored advice—so you can make smart changes before the next tax return is due.
2. Loss of CGT reliefs
Thinking about selling your holiday let, passing it down, or even just planning an exit in a few years? The new tax regime has changed the rules of the game for capital gains. What once made disposing of a furnished holiday let relatively tax-efficient is now off the table, and the impact on your future plans could be bigger than you think.
Before:
Selling a qualifying asset could unlock Business Asset Disposal Relief (BADR), rollover relief, hold-over relief, and other capital gains tax reliefs—potentially slashing your tax bill when you sold, transferred, or gifted your holiday let.
After:
Only regular residential property CGT rules apply. Holiday let sales are now treated just like any other rental properties, with no BADR or special CGT reliefs.
How it affects you:
Expect higher capital gains tax bills if you sell or transfer your holiday home—timing and strategy are more important than ever.
📌 Pro Tip: If you’re considering selling or gifting a property, get professional advice on CGT calculations and explore whether you can still benefit from other available reliefs or allowances before the sale.
3. Finance costs and mortgage interest
One of the main financial advantages of holiday lets has been the ability to fully deduct mortgage interest—an edge that kept the numbers looking good for higher-rate taxpayers and savvy investors alike. With this perk vanishing, the real cost of borrowing is about to feel a lot steeper for many property owners.
Before:
Mortgage interest on FHL properties could be fully deducted from rental income, reducing taxable profits (and, for many, the overall tax bill).
After:
Just like buy-to-lets, only a 20% basic rate tax credit applies to mortgage interest—regardless of your actual tax band.
How it affects you:
Higher-rate and additional-rate taxpayers will see their FHL profits (and tax bills) rise. Limited companies may also need to revisit their corporation tax strategies.
📌 Pro Tip: Track your finance costs separately from day one this tax year, and run new cash flow forecasts—this shift could tip a marginally profitable holiday let into loss territory.
4. Capital allowances
Furnishing a holiday home used to mean more than just making guests comfortable—it was a chance to lighten your tax bill, too. Changes to the capital allowances rules strip out this benefit, and if you’re planning any upgrades, it’s time to rethink how and when you invest in your property.
Before:
You could claim capital allowances for furniture, equipment, and appliances—offsetting profit and boosting cash flow when upgrading a holiday home.
After:
Only replacement of domestic items relief applies. No deductions for initial purchases, only for like-for-like replacements.
How it affects you:
Less tax relief when refurbishing or furnishing a new holiday let, so budget for a bigger tax bill if you upgrade.
📌 Pro Tip: Document all replacement purchases clearly. If you’re planning a major refresh, consider whether to time big spends for maximum relief under the new rules.
5. Pension contributions
If your holiday let property income has played a role in your retirement strategy, pay close attention. The old rules offered a valuable route to boost pension contributions and gain extra tax relief. With this door now closed, you’ll want to review your longer-term savings plan.
Before:
Profits from qualifying FHLs counted as “relevant UK earnings,” letting you pay more into pensions and shrink your income tax bill.
After:
Standard rental profits are not pension-eligible. Your ability to use your holiday home income for pension planning is now limited.
How it affects you:
You’ll need other income sources to support pension contributions; holiday let profits no longer boost your retirement savings.
📌 Pro Tip: If pension planning was a big part of your FHL strategy, review your options early with an independent adviser—there may be other, more tax-efficient routes for retirement savings.
6. Business rates and council tax
For years, meeting the FHL rules could help owners avoid council tax and claim more favourable business rates instead. The new regime raises the bar for qualification and increases the risk that many holiday homes will find themselves paying more, with local variations that add extra complexity.
Before:
Most FHLs paid business rates (often with small business relief), avoiding higher council tax charges.
After:
More holiday homes—especially in England and Wales—now face council tax if they don’t meet minimum occupancy and availability requirements.
How it affects you:
Annual costs could rise sharply. Check your property’s status and plan for possible local tax hikes.
📌 Pro Tip: Audit your bookings annually and keep clear occupancy records. A few extra weeks let each year can make a big difference in your council tax bill.
7. Impact on multiple properties, companies and regions
Own more than one holiday let? Run your business through a company, or have properties across different parts of the UK? The 2025 changes create a new landscape that demands a careful look at your ownership structure, admin processes, and local rules—otherwise, you could face unwelcome surprises.
Before:
Multiple FHLs meant multiple opportunities for tax benefits—sometimes amplified through limited company structures and smart regional planning.
After:
All properties face the same, stricter tax regime, with extra corporation tax admin for companies and more paperwork for owners with lets in different regions.
How it affects you:
Higher tax bills, more admin, and a need to review whether your company structure or regional spread still makes sense.
📌 Pro Tip: Consider consolidating portfolios or rethinking company vs. individual ownership. An annual “tax strategy review” is now essential, not optional.
8. Inheritance tax
Holiday lets have sometimes offered a glimmer of hope for estate planning, with special reliefs available for those run as a true business. The new tax rules bring most holiday homes squarely back into the inheritance tax net, making advance planning more important than ever for families who want to keep assets in the next generation.
Before:
A well-run FHL business could sometimes qualify for Business Property Relief, reducing (or removing) inheritance tax on your holiday property.
After:
With FHL tax status gone, most holiday homes are now treated as investment properties—counted in full toward your estate for inheritance tax.
How it affects you:
Your heirs may face a 40% IHT charge (after allowances), unless you plan ahead or restructure your assets.
📌 Pro Tip: Review your estate plan and consider trusts, gifts, or insurance to help cover IHT—especially if your holiday home is a big part of your legacy.
9. Stamp duty (SDLT/LTT)
The tax changes don’t just hit income and capital gains—they may affect your decisions about buying, selling, or transferring holiday lets. Stamp duty (and its Welsh cousin, LTT) is a cost that’s easy to overlook until it lands, so it’s crucial to factor these charges into any plans to restructure or gift property.
Before:
Buying or transferring FHLs could sometimes be structured to soften the blow of stamp duty, especially if moving into a company.
After:
No change to stamp duty rates, but the loss of FHL perks makes ownership changes less attractive—and stamp duty on company transfers or family gifts is now a key factor.
How it affects you:
Expect a hefty SDLT or Land Transaction Tax bill if you restructure ownership; planning is more important than ever.
📌 Pro Tip: Before transferring a property, run the numbers for both stamp duty and income tax. Sometimes it’s better to hold steady than pay a big upfront tax for a move that no longer brings extra reliefs.
10. The anti-forestalling rule
With so many rule changes, it’s tempting to try and take action before the old regime disappears for good. However, HMRC is on alert for any moves designed purely to sidestep the new system, and anti-forestalling rules are in place to prevent last-minute workarounds from slipping through the cracks.
Special rule:
HMRC has put anti-forestalling rules in place to prevent owners from rushing sales, gifts, or restructures in a bid to lock in FHL tax breaks before April 2025.
Impact:
If HMRC decides a transaction was designed to exploit the old rules, it may be taxed under the new regime regardless of timing.
📌 Pro Tip: If you’re planning any major moves before the deadline, get specialist advice and keep detailed evidence for your decision-making—HMRC will be watching.
Who is impacted by the new rules?
Not all holiday let owners will feel the changes equally. Here’s how the 2025 tax shake-up lands, depending on your situation:
Individuals
- Will notice immediate changes in tax advantages, deductions, and how profits are calculated on their tax returns.
- Higher-rate taxpayers, in particular, will see less relief on mortgage interest and fewer opportunities to offset costs.
Limited companies
- Face new corporation tax implications and the loss of several company-level reliefs that previously made FHLs attractive.
- Reporting and compliance requirements are now stricter, with less room for tax planning around holiday lets.
Property owners with multiple lets
- More properties means more paperwork and higher cumulative tax bills, especially for landlords who built portfolios around the FHL business model.
- Regional differences (like stricter council tax rules in Wales or Scotland) can add to the admin burden.
What holiday let owners should do now
The new tax rules are here, and smart owners are already making moves to protect their profits and peace of mind. Treat this like a business reset—review your strategy, tighten your records, and get expert advice if needed. Here’s your action plan:
- Review your business structure: Is it still best to hold your property as an individual, or does a limited company (or a change in ownership) make more sense now?
- Recalculate profits and finance costs: Run the numbers with the new rules—factor in higher tax rates, restricted interest relief, and lost allowances so you’re not caught off guard.
- Reassess your pension contribution strategy: Holiday let income might not boost your pension pot like it used to. Review your savings approach and look for other tax-efficient options.
- Prepare for higher tax and lost reliefs: Expect less room for maneuver on your next tax return—plan for bigger bills, especially if selling, transferring, or inheriting property.
- Know when to get professional advice: If you’re facing succession planning, selling assets, restructuring, or dealing with big numbers, get a specialist on your side. Draft legislation and complex cases can change fast.
- Stay up to date with HMRC guidance: The tax year transition is a moving target—subscribe to updates, track further rule changes, and don’t assume last year’s approach still works.
- Keep detailed records and adapt quickly: Log bookings, occupancy, expenses, and all correspondence—good records mean fewer headaches in the event of a query or audit.
- Future-proof your business: Review your letting strategy, upgrade your admin, and stay flexible so you can respond to future tax changes without scrambling.
Stay ahead of the curve (and the taxman)
Change is the only constant, but it doesn’t have to be a headache. The new tax rules may be dramatic, but with a bit of preparation—and a few smart moves—you can stay in control of your profits and keep your business running smoothly.
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Frequently Asked Questions
Do the 2025 holiday let tax changes affect all furnished holiday lets?
Yes—if your property previously qualified as an FHL, the new rules apply across the UK. All furnished holiday lets lose their special tax status from April 2025.
Will I still be able to claim capital allowances on new furniture and appliances?
No. Capital allowances are ending for holiday lets. Only “replacement of domestic items relief” remains, meaning you can only deduct the cost of replacing items, not initial purchases.
How do the changes affect mortgage interest relief?
Mortgage interest is now only eligible for a basic-rate (20%) tax credit—just like with standard rental properties. Higher-rate relief is gone.
Do these changes impact owners with multiple holiday lets or limited companies?
Yes. Portfolio landlords and limited companies will see cumulative effects—higher tax bills, more admin, and less flexibility in planning. Company owners also face changes in corporation tax treatment.
What about selling my holiday let—how is capital gains tax changing?
You’ll no longer qualify for Business Asset Disposal Relief (BADR), rollover relief, or other FHL-specific capital gains reliefs. Sales are now taxed like any other residential property, often at higher rates.
Will these changes affect how I can use my holiday let profits for pension contributions?
Yes. Profits from holiday lets will no longer count as “relevant UK earnings” for pension contribution purposes, limiting your options for tax-advantaged retirement savings.
Are there new rules for council tax or business rates?
Many holiday lets will now pay council tax unless they meet stricter occupancy thresholds—especially in England and Wales. Business rates relief is harder to qualify for.
What happens if I restructure ownership or transfer my holiday let to a company or family member?
Ownership changes may still trigger stamp duty (SDLT/LTT) and are less attractive now that FHL-specific tax benefits have ended. Crunch the numbers carefully before making any moves.
Should I seek professional advice about these changes?
Yes. Especially if you have multiple properties, complex ownership structures, or are considering selling, gifting, or succession planning. The new landscape means tailored advice is more valuable than ever.
Where can I find official guidance and updates?
Check HMRC’s website regularly, subscribe to our newsletter, and keep in touch with your accountant to stay on top of new rules, clarifications, and compliance tips.