Furnished Holiday Lets Are Gone: What It Means for Landlords in 2025/26

The FHL Tax Regime Is Over — What You Need to Do Now

As of 6 April 2025, the Furnished Holiday Let (FHL) regime is no longer in effect. For many landlords, this marks a significant shift in how short-term rental income is taxed — and could impact everything from profits and mortgage relief to Capital Gains Tax.

So, what does this actually mean? And what should you be doing now?

Here’s a practical breakdown of the key changes, who they affect, and how to plan ahead.

 What Was the FHL Regime — and Why Did It Matter?

The FHL regime provided valuable tax benefits for landlords letting out furnished holiday properties on a short-term basis.

To qualify, a property needed to be:

• Available for letting at least 210 days per year

• Actually let for 105 days

• Furnished and located in the UK or EEA

If these conditions were met, landlords could benefit from:

• Full mortgage interest relief

• Ability to claim capital allowances on furniture and fixtures

• Profits counted as relevant earnings for pension contributions

• Access to Business Asset Disposal Relief (10% CGT rate) when selling

• Use of Rollover and Holdover Reliefs

All of that is now gone.

 What Has Changed from 6 April 2025?

From the 2025/26 tax year onwards, all short-term lets are now treated as standard property income, regardless of how often they’re let out.

Here’s what that means in real terms:

1. No More Full Mortgage Interest Relief

You can no longer deduct 100% of your mortgage interest. Instead, you’ll receive a flat 20% tax credit, just like long-term residential landlords.

Higher-rate taxpayers will see a noticeable increase in tax bills.

2. Capital Allowances Are Gone

You can’t claim capital allowances on furnishings and fixtures anymore. Only replacement relief is allowed, and only when you actually replace items.

3. Capital Gains Tax (CGT) Reliefs Withdrawn

You can no longer claim:

• Business Asset Disposal Relief (no more 10% CGT rate)

• Rollover Relief

• Holdover Relief

If you sell a former FHL, you may now pay 18% or 24% CGT, depending on your income.

4. Profits No Longer Count for Pension Contributions

Rental profits from short-term lets are now treated as investment income, not trading income. This means they don’t count as “relevant earnings” for tax-relievable pension contributions.

 What Should Landlords Do Now?

This change will increase the tax burden for many holiday let owners — but it doesn’t mean you’re out of options. Here’s what to consider:

 1. Reassess Your Tax Position

Now that your holiday let income is taxed like a regular rental, you may find yourself:

• In a higher tax bracket

• Losing out on full deductions

• Paying more when you sell

A full tax review is essential.

 2. Switch to Long-Term Letting

For some properties, switching to long-term tenants may reduce admin, improve stability, and simplify tax reporting. This is especially useful in areas with strong rental demand.

 3. Review Limited Company Options

Limited companies still get full mortgage interest relief and pay Corporation Tax (19%–25%) instead of income tax. But transferring properties into a company can trigger CGT and SDLT, so always get advice first.

 4. Plan CGT Disposals Carefully

Selling a property? You can no longer access business CGT reliefs, so it may be worth holding off — or considering other planning options, like spousal transfers or phased disposals.

 How Merranti Can Help

This is a major tax change, and it’s already in force. Whether you’re operating a single Airbnb or managing multiple short-term lets, you’ll need to adjust your approach to stay compliant — and stay profitable.

At Merranti Accounting, we’re already helping landlords like you:

• Forecast tax liabilities under the new rules

• Reposition properties to remain viable

• Explore limited company strategies

• Plan exits and reinvestments tax-efficiently

Get in touch today for a free, no-pressure consultation:

• Call us on 01342 836 557

• Email: contactus@merranti.com

Let’s adapt your strategy, minimise the tax impact, and keep your property business growing.