End of Furnished Holiday Letting (FHL) Tax Reliefs – Major Changes from April 2025

For forty years, the UK’s Furnished Holiday Letting (FHL) regime has offered generous tax advantages. These benefits are for landlords providing short-term accommodation that meets specific criteria. These rules have long been more favourable than those for standard residential property letting.

However, with the rise of platforms like Airbnb and years of low interest rates, the popularity of FHLs has grown sharply. This trend has been blamed for distorting the private rental market. It has also reduced the number of properties available for long-term tenants and first-time buyers.

At the Spring Budget 2024, the Chancellor announced that all FHL tax advantages will be abolished from 6 April 2025.
This marks the end of a longstanding relief system and will have significant tax implications for property owners.

1. Restriction on Finance Cost Deductions

Currently, mortgage interest and other finance costs (such as loan arrangement fees) on qualifying FHL properties are fully deductible from rental income. This applies when calculating taxable profits.

From 6 April 2025, this full deduction will be abolished. Instead, finance costs will only attract basic rate (20%) tax relief. This is similar to the restriction that already applies to normal residential landlords.

This change will particularly impact owners who are highly geared — that is, where most of the property purchase was funded by borrowing. As interest rates have risen in recent years, this reduction in tax relief could make some FHL operations significantly less profitable.

2. Loss of Capital Gains Tax (CGT) Reliefs

Several Capital Gains Tax reliefs that currently apply to FHLs will be withdrawn after 5 April 2025.
The following reliefs will no longer be available:

• Business Asset Disposal Relief (BADR) – Currently allows qualifying gains (up to £1 million lifetime limit) to be taxed at 10% instead of 20%, saving up to £100,000 in CGT.
• Rollover Relief – Allows a CGT gain on the sale of one FHL to be deferred if the proceeds are reinvested in another qualifying property.
• Gift Relief – Enables a deferral of CGT when a property is gifted (for example, to a family member). Without this relief, a gift is treated as a disposal at market value, and tax becomes payable immediately.

If you are considering gifting your FHL — for example, as part of succession or inheritance planning — it may be worth bringing forward the transfer. Doing so ensures it occurs before 6 April 2025, when these reliefs are still available.

3. Changes to Relief for Fixtures and Fittings

At present, FHL owners can claim 100% tax relief for the cost of furnishing or equipping a property. This includes items such as beds, tables, sofas, or kitchen appliances.

From 6 April 2025, this advantage will also end.
The rules will align with those for standard residential letting, meaning:

• You will no longer receive immediate tax relief for the cost of furnishing a property; and
• You will only be able to claim tax relief on the replacement of existing fixtures and fittings (not initial purchases).

This change will reduce upfront tax relief for new FHL owners. It will also increase the tax cost of refitting older properties.

4. What These Changes Mean for Landlords

From April 2025, the tax position of FHL owners will effectively align with that of standard residential landlords. The combined effect of:

• Reduced finance cost relief,
• Withdrawal of CGT reliefs, and
• Removal of upfront deductions for furnishings,

…will make FHL ownership less tax-efficient overall.

For those with heavily mortgaged properties, this may turn previously profitable lettings into marginal or even loss-making ventures — especially given higher borrowing costs.

5. Planning Ahead

If you own one or more Furnished Holiday Lets, now is the time to review your position and plan ahead before these changes take effect.

You should:

• Assess how the restriction on interest relief will affect your post-tax profitability.
• Consider whether to sell or gift properties before April 2025 to access existing CGT reliefs.
• Review the long-term viability of your FHL business once the regime ends.
• Keep clear financial records to support any disposals or transfers made during 2024/25.

How Merranti Can Help

At Merranti Accounting, we can help you:

• Quantify how the FHL reforms will affect your tax position,
• Model the impact of interest relief restrictions and CGT rule changes, and
• Plan tax-efficient disposal, gifting, or restructuring strategies before the deadline.

Given that many of these reliefs will end completely from 6 April 2025, early action could save substantial tax and protect long-term property value.