If you let a holiday cottage in the Lakes or a city flat on short stays, your 2025-26 figures will look different. The rent may have barely moved, but the tax bill is likely higher. That is the first full tax year without the furnished holiday lettings regime, and most landlords feel it when they sit down to do the return.
TL;DR: The furnished holiday lettings (FHL) regime ended on 6 April 2025. Holiday lets are now taxed like ordinary residential property. You lose full mortgage interest relief, capital allowances on new spending, and the 10% capital gains tax rate. The 2025-26 tax year is the first full year under the new rules.
What Changed When the FHL Regime Was Abolished?
The FHL regime ended on 6 April 2025 for income tax and capital gains tax, and on 1 April 2025 for companies paying corporation tax (GOV.UK policy paper, 2024). It was announced at the Spring Budget 2024 and was costed to raise around £35 million in 2025-26, rising to £245 million a year by 2028-29 (House of Commons Library, 2024).
Before the change, a qualifying holiday let was treated as a trade for several tax purposes. That gave four advantages ordinary landlords never had: full deduction of loan interest, capital allowances on furniture and equipment, access to trading capital gains tax reliefs, and pension-relevant earnings. From April 2025 a former FHL simply joins your wider UK or overseas property business and follows the same rules as any buy-to-let.
How Does the Mortgage Interest Restriction Hit Your Tax Bill?
Loan interest on a holiday let is no longer deducted in full. It now follows the finance cost restriction that has applied to other residential lets since 2020, giving relief as a basic-rate tax credit worth 20% of the interest (GOV.UK, 2024).
In our experience this is the change that catches landlords out most. A higher-rate taxpayer used to get 40% relief on every pound of mortgage interest. Now the same interest only generates a 20% credit, so the effective cost of borrowing on the property has roughly doubled. Take a holiday let with £10,000 of annual interest: the old rules cut a higher-rate bill by £4,000, while the new credit is worth £2,000. The taxable profit figure also rises because interest is added back before the credit is applied, which can tip some landlords into the higher-rate band.
Capital Allowances: What You Can Still Claim
You can no longer claim capital allowances on new furniture, white goods, or equipment bought for a former holiday let. Instead you fall back on replacement of domestic items relief, the same relief available to standard residential landlords (GOV.UK, 2024).
There is one piece of continuity worth knowing. If your FHL business already had a capital allowances pool at 5 April 2025, you can keep claiming writing-down allowances on that pool after the regime ends. What you cannot do is add new expenditure to it. Replacement of domestic items relief covers like-for-like replacements of things such as beds, sofas, and crockery, but it gives nothing for the initial cost of kitting out a property and nothing for fixed plant. What we see most often is landlords assuming a new oven or sofa is still fully deductible as it was under FHL rules, then finding the relief is narrower than they expected.
What Happened to the 10% Capital Gains Tax Rate?
Gains on selling a former holiday let no longer qualify for Business Asset Disposal Relief, so the 10% rate is gone. Disposals now follow standard residential property capital gains tax rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (GOV.UK CGT rates, 2026). Rollover relief, gift holdover relief, and the other trading-asset reliefs also no longer apply (GOV.UK, 2024).
There is a narrow transitional window. Where an FHL business genuinely ceased before 6 April 2025, Business Asset Disposal Relief can still apply to a disposal made within the normal three-year period after cessation. An anti-forestalling rule blocks attempts to lock in the old relief using unconditional contracts, and it applies to contracts entered into on or after 6 March 2024 (GOV.UK, 2024). If you are weighing up a sale and think the cessation date matters, get the timing checked before you commit. We cover the wider relief in our guide to Business Asset Disposal Relief at 18%.
Jointly Owned Holiday Lets: The 50/50 Default
This one quietly costs married couples money. Under the FHL rules you could split holiday let profits in any proportion that reflected your actual arrangement, which let couples direct more income to the lower earner. As an ordinary property let, a jointly owned property between spouses or civil partners defaults to a 50/50 split for tax.
You can move away from 50/50, but only by making a Form 17 election with HMRC, and only where the beneficial ownership is genuinely unequal. One question clients always ask is whether they can keep sending most of the profit to a non-working spouse. The honest answer is that it now depends on who actually owns the property, not on how you used to allocate the income. If both names are on the title in equal shares, 50/50 is where you land.
What Should Holiday Let Landlords Do for 2025-26?
Start by treating the property as a normal residential let in your 2025-26 records, because the self-assessment return for that year is due by 31 January 2027 and will be the first filed under the new rules. Add interest back and apply the 20% credit, switch from capital allowances to replacement of domestic items relief, and check your ownership split.
A few practical steps make the transition cleaner. Bring forward any standalone FHL losses, which can now be carried forward against your wider UK or overseas property business rather than being ring-fenced. Review whether the property still makes sense in your name or whether a longer-term let, a company structure, or a sale fits your plans better. Cash flow matters too, because a higher tax charge on the same rent squeezes margins, and our guide to cash flow management for UK small businesses walks through the basics. If you are reviewing your structure more broadly, our comparison of sole trader versus limited company is a useful starting point.
Frequently Asked Questions
When exactly did the FHL regime end?
The regime ended on 6 April 2025 for income tax and capital gains tax, and on 1 April 2025 for companies within corporation tax. The 2025-26 tax year, which ran from 6 April 2025 to 5 April 2026, is the first full tax year taxed under the new rules.
Do I still need to meet the old occupancy conditions?
No. The 105-day letting test and the other FHL qualifying conditions no longer matter, because the special status is gone. Your holiday let is taxed as part of your ordinary property business regardless of how many days it is occupied.
Can I still claim mortgage interest on my holiday let?
Yes, but not in full. Loan interest now gives relief as a basic-rate tax credit worth 20% of the interest, the same as for other residential lets. Higher and additional-rate taxpayers no longer get relief at their marginal rate.
Will selling my holiday let still qualify for the 10% tax rate?
No. Business Asset Disposal Relief no longer applies to former holiday lets, so gains are taxed at the standard residential property rates of 18% or 24%. A limited three-year transitional window exists only where the business genuinely ceased before 6 April 2025.
What happens to my old FHL losses?
Losses carried forward from the FHL business can now be set against the profits of your wider UK or overseas property business, depending on where the property sits. They are no longer ring-fenced to the holiday let activity alone.
If you run a holiday let and want to see what the new rules do to your 2025-26 position before you file, get in touch. We can run the numbers, check your ownership split, and tell you whether keeping, restructuring, or selling makes the most sense for your situation.