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The UK Government has officially abolished the Furnished Holiday Lettings (FHL) tax regime as of 6 April 2025, bringing significant changes to how holiday let income is treated for tax purposes. This update affects landlords operating holiday lets, Airbnb-style rentals, cottages, annexes, and other short-stay properties across the UK, aligning their tax treatment with that of standard residential rental income.

End of Furnished Holiday Lettings Tax Regime

Previously, landlords of holiday lets benefited from a distinct set of tax rules under the Furnished Holiday Lettings regime, which provided various tax advantages including enhanced pension relief, mortgage interest deductions, and capital gains tax reliefs. However, from April 2025, these special provisions have been withdrawn, and all income from holiday lets is now taxed in the same manner as income from traditional residential lettings.

This change means that landlords can no longer apply the FHL-specific tax reliefs and must instead follow the standard rules applicable to residential rental properties. The Government’s decision to end the FHL regime aims to simplify tax administration but also has notable financial implications for landlords who rely on holiday lets as part of their property portfolio.

Impact on Pension Contributions

One of the key consequences of the abolition of the FHL rules is the change to pension tax relief eligibility. Under the previous regime, income from holiday lets could be counted towards pension contribution allowances, potentially increasing the amount landlords could contribute with tax benefits. The new rules mean that holiday let income no longer qualifies for this treatment.

As a result, landlords may find that their ability to make pension contributions with tax relief is reduced. This change could affect retirement planning strategies for those who have relied on holiday let income to maximise their pension allowances. Landlords should review their pension arrangements in light of this update and consider seeking professional advice if necessary.

Mortgage Interest Deduction Aligns with Residential Lettings

Another significant change concerns mortgage interest relief. Under the FHL regime, landlords could deduct the full amount of mortgage interest from their rental profits before calculating taxable income. Since April 2025, this is no longer the case for holiday lets. Instead, mortgage interest is treated as a tax credit at a flat rate of 20%, the same as for other residential landlords.

For example, if a landlord pays £2,000 annually in mortgage interest on a holiday let, they will now receive a £400 tax credit rather than deducting the full amount from their taxable profits. This adjustment may increase the taxable income reported by landlords and potentially raise their overall tax liability, depending on their individual circumstances.

Changes to Furniture and Equipment Reliefs

The generous tax reliefs previously available for furniture, appliances, and fittings under the FHL rules have also been discontinued. Landlords can no longer claim capital allowances on furnishings and equipment as part of their holiday let business. However, Replacement of Domestic Items Relief remains available, allowing landlords to claim relief when replacing worn-out items such as sofas, fridges, freezers, beds, or mattresses.

This means that while landlords cannot claim tax relief on new furniture or equipment purchases, they can continue to offset the cost of replacing existing domestic items. Landlords should ensure they keep detailed records of such replacements to support any claims made under this relief.

Capital Gains Tax and Loss Treatment

Special capital gains tax (CGT) reliefs that applied to FHL properties have been removed. When selling a holiday let, any capital gain realised will now be subject to the standard CGT rates applicable to residential property disposals. This change could result in higher CGT liabilities for landlords disposing of holiday lets compared to previous years.

Additionally, losses incurred from holiday lets are now treated as part of the general property business. These losses can be carried forward and offset against future rental profits, providing some flexibility in managing tax liabilities over time. Landlords should review their tax records to ensure losses are correctly reported and utilised.

Ongoing Deductible Running Costs

Despite the changes, landlords can continue to claim a range of running costs associated with managing holiday lets. Deductible expenses include repairs, cleaning, utilities, maintenance, insurance, and platform or agent fees such as those charged by Airbnb. These costs remain allowable against rental income, helping to reduce taxable profits.

It is important for landlords to maintain comprehensive and accurate records of all expenses to ensure compliance and maximise allowable deductions under the new tax framework.

What this means for landlords

The abolition of the Furnished Holiday Lettings tax regime represents a substantial shift in the tax landscape for landlords operating holiday lets. Those affected should carefully review their rental business structures, tax reporting practices, and financial planning strategies to accommodate the new rules. This includes reassessing pension contributions, mortgage interest claims, and capital gains tax planning.

Landlords may need to update their accounting systems and consult with tax professionals to ensure compliance and optimise their tax positions under the revised regime. Letting agents and property managers should also be aware of these changes to provide accurate advice and support to their clients. Staying informed and proactive will be essential to managing the financial impact effectively.

What TLA members should consider

• Review your holiday let portfolio to understand how the end of the FHL regime affects your tax liabilities and reporting requirements.
• Check your pension contribution plans in light of the removal of FHL income from pension relief calculations.
• Update mortgage interest claims to reflect the 20% tax credit system rather than full deduction of interest payments.
• Maintain detailed records of replacement domestic items to continue claiming Replacement of Domestic Items Relief.
• Plan for potential increases in capital gains tax when selling holiday lets under the standard residential property rates.
• Ensure all allowable running costs such as repairs, cleaning, and platform fees are properly documented and claimed.

TLA Training Academy

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Landlords can explore the Academy here: https://landlordassociation.org.uk/tla-academy/

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TLA update

The Landlord Association is continuing to expand its support, resources and partner network for landlords, tenants, agents and property professionals across the UK. Service providers interested in working with TLA can register their interest here: https://landlordassociation.org.uk/become-a-tla-service-partner/