Furnished Holiday Let Abolition 2025 — Complete Landlord Guide to the End of the FHL Tax Regime

What changed — the five lost FHL tax advantages

The FHL regime provided five key tax advantages over ordinary residential property letting. All five were lost from April 2025:

• 1. Business Asset Disposal Relief (BADR) — lost: Under the old FHL regime, a qualifying FHL property was treated as a business asset for CGT purposes. On disposal of a qualifying FHL property, individuals could claim BADR (formerly Entrepreneurs' Relief) reducing the CGT rate to 10% on gains up to the lifetime allowance (£1 million from 2020/21). From 6 April 2025, FHL properties are no longer business assets for BADR purposes — they are residential property assets. Gains on disposal of former FHL properties after 6 April 2025 are subject to CGT at 18% (basic rate) or 24% (higher rate) residential rates. For high-gain FHL disposals, the shift from 10% to 24% represents a substantial increase in tax cost
• 2. Capital allowances on furniture and fixtures — lost: Under the old FHL regime, landlords could claim capital allowances (Annual Investment Allowance; writing-down allowances) on the cost of furnishings, equipment, and fixtures in FHL properties. The AIA allowed 100% first-year deduction of qualifying capital expenditure. From 6 April 2025, FHL properties are treated as ordinary property lettings — only the Replacement of Domestic Items Relief (RDIR) is available for furnishings. RDIR allows a deduction for the cost of replacing existing domestic items (beds, sofas, appliances) but does not allow relief for initial provision of furnishings. FHL operators fitting out a new property from 6 April 2025 cannot claim capital allowances on initial furnishings
• 3. Pension contribution offset — lost: Under the old FHL regime, FHL profits counted as 'relevant UK earnings' for the purposes of calculating the annual pension contribution limit. This allowed high-income FHL operators to contribute up to £60,000 per year (the 2024/25 annual allowance) into a pension scheme and claim full income tax relief on those contributions, offset against FHL profits. From 6 April 2025, FHL profits are ordinary property income — not relevant UK earnings. Pension contributions can no longer be offset against FHL profits beyond the general earned income limit. FHL operators who relied on pension contributions to manage their effective income tax rate face a significant change in planning options
• 4. Finance Cost Restriction (Section 24) — now applies: Under the old FHL regime, FHL properties were exempt from the Section 24 finance cost restriction (which restricts higher-rate income tax relief on mortgage interest to the basic rate — 20% — for residential property businesses). FHL landlords could deduct their full mortgage interest and finance costs against FHL profits. From 6 April 2025, FHL properties are treated as ordinary residential lettings and are subject to the Section 24 restriction. Higher-rate and additional-rate taxpayer FHL owners with mortgaged properties now receive only a 20% tax credit on their mortgage interest — significantly increasing their effective tax liability
• 5. Rollover relief — lost: Under the old FHL regime, a gain on disposal of a qualifying FHL property could be rolled over into acquisition of another qualifying FHL property under the business asset rollover relief rules. Rollover relief deferred CGT on the gain until a subsequent disposal or until the replacement asset ceased to qualify. From 6 April 2025, rollover relief is no longer available for FHL properties — they are not business assets. Gains on disposal after 6 April 2025 (including on contracts exchanged before but completed after that date, where the gain arises on completion) are fully chargeable in the year of disposal at residential CGT rates

Transitional rules — existing capital allowance pools

The Finance (No.2) Act 2024 contains transitional provisions to deal with capital allowance pools existing at the date of abolition. These are important for FHL owners who had accumulated capital allowance claims:

• Existing capital allowance pools continue: Where a landlord had an unrelieved balance in a capital allowance pool (main pool at 18% writing-down allowance; special rate pool at 6%) at 5 April 2025, those unrelieved balances can continue to be claimed as writing-down allowances in subsequent years against ordinary property income. The pool does not crystallise into a balancing allowance simply because the FHL regime ended. The transitional rules allow the pre-abolition capital allowance pools to run off against future property income at the normal writing-down allowance rates
• No new capital allowances from 6 April 2025: Capital allowances are not available on expenditure incurred on FHL properties on or after 6 April 2025 — the transitional rules only preserve existing pool balances. For new furnishings or equipment purchased after 5 April 2025 for what was previously an FHL property, only RDIR is available (replacement of existing items) — initial provision of furnishings attracts no allowance. This creates an asymmetric position: old pool balances wind down; new expenditure receives only RDIR
• Balancing allowances and charges on cessation of FHL activity: Where an FHL property is sold after 5 April 2025 and the former FHL activity ceases, the transitional rules determine whether a balancing allowance or balancing charge arises on the pool balance at cessation. HMRC's guidance confirms that cessation of FHL activity (including disposal of the FHL property) triggers the normal balancing allowance/charge rules for the pool. FHL owners planning a disposal should model the pool position and expected balancing allowance or charge as part of the overall CGT calculation
• Anti-avoidance — pre-abolition planning: HMRC has confirmed that artificial transactions entered into before 6 April 2025 to claim capital allowances or BADR in respect of property that was not genuinely qualifying FHL property will be challenged. The FHL qualifying conditions (available for letting at least 210 days per year; actually let commercially for at least 105 days per year; not let for more than 31 continuous days to the same person) must have been genuinely met in each year a claim was made. FHL owners who claimed allowances on properties that did not meet the qualifying conditions should take professional advice on rectifying past claims before HMRC review

Planning options for FHL owners after abolition

FHL owners need to review their position across income tax, CGT, financing, and structure. Several planning options may be available depending on individual circumstances:

• Convert to long-term let: Converting a former FHL property to a standard assured tenancy long-term let removes the FHL income tax complexity (no more 105-day letting condition to manage) and may reduce operating costs (marketing; guest management; utilities). The property is then an ordinary residential letting. RDIR is available on replacement of furnishings. The Section 24 finance cost restriction applies if mortgaged. If converting to a long-term let in England, the RRA 2025 Property Portal registration and PRS Ombudsman obligations apply. Consider EPC requirements — a long-term let must meet the Minimum Energy Efficiency Standard (MEES) requiring EPC E or better, whereas short-let accommodation currently has different EPC obligations
• Company structure review: Higher-rate taxpayer FHL owners who are significantly affected by the loss of BADR and the application of Section 24 should model whether transferring properties into a limited company makes sense. In a company, mortgage interest is fully deductible against corporation tax (currently 25%); capital gains are subject to corporation tax (not residential CGT rates); and the BADR loss is equivalent in a company structure (companies do not claim BADR). However, incorporation itself may trigger CGT (on the gain up to the date of transfer) and SDLT/LBTT/LTT (on the market value of the property transferred). Incorporation Relief (TCGA 1992 s.162) may be available where the property is transferred as part of a business — but whether a former FHL property qualifies as a business for s.162 purposes depends on the facts and is a complex point post-abolition
• Disposal planning — timing and holdover: FHL owners considering disposal should model the CGT position carefully. Gains on disposals exchanged and completed after 6 April 2025 are subject to residential CGT rates (18%/24%). For properties already under offer, the exchange date determines when the gain crystallises — contracts exchanged before 6 April 2025 may still benefit from BADR if the contract was unconditional. FHL owners who did not dispose before abolition should consider whether to gift to a spouse (CGT-free inter-spouse transfer; the recipient receives the property at base cost for future disposal); gift with holdover relief (where available); or simply retain and operate as an ordinary letting and dispose when the market and tax position are most favourable
• EPC and regulatory compliance for short-let properties: Former FHL properties continuing to operate as short-let holiday accommodation (outside the assured tenancy regime) should review their regulatory position. Short-term holiday lets in England are subject to a new mandatory registration scheme announced in 2024. Cotswolds, Lake District, and other high-demand tourist areas may have specific local authority controls. The Levelling Up and Regeneration Act 2023 gave local authorities power to create short-term holiday let planning use class zones — some councils have implemented or are considering restrictions. FHL operators should monitor local planning conditions and registration requirements in their area

FHL abolition — jurisdiction differences and NRCGT implications

The FHL abolition is a UK-wide income tax and CGT change. However, property transaction taxes on disposals and restructurings vary by UK jurisdiction, and non-resident FHL owners face specific NRCGT considerations:

• SDLT England and Northern Ireland: The SDLT position on disposal of a former FHL property is unchanged by the abolition — standard residential SDLT rates apply to the purchaser. If the FHL owner is incorporating (transferring to a company), SDLT applies on the market value of the property at the normal residential rates (including the 5% higher rates surcharge for companies). The SDLT 1% relief for mixed-use or commercial property is not available for former FHL properties — they remain residential for SDLT purposes
• LBTT Scotland: For Scottish FHL properties, LBTT applies on any disposal or transfer. ADS (8% from April 2024) applies to the purchaser on additional dwellings. On incorporation of Scottish FHL properties, LBTT applies at market value. The LBTT multiple dwellings relief may be available if transferring multiple Scottish properties in a single transaction. Scottish Landlord Registration obligations apply if the property is converted to a long-term residential let — register with the relevant Scottish local authority. PRT (Private Residential Tenancy) rules apply to any long-term residential let in Scotland
• LTT Wales: For Welsh FHL properties, LTT applies on disposal or transfer. The Higher Rates for Residential Transactions (HRR; 5% from December 2024) applies to purchasers of additional dwellings in Wales. Rent Smart Wales registration and (if self-managing) licensing obligations apply if a Welsh FHL is converted to a long-term residential let. Welsh occupation contract rules (RHWA 2016) apply to any long-term residential tenancy in Wales
• Non-resident FHL owners and NRCGT: Non-UK resident individuals and companies who owned qualifying FHL properties were also subject to the old FHL regime for UK tax purposes. From 6 April 2025, their FHL properties are treated as ordinary UK property income under the Non-Resident Landlord Scheme (NRLS). On disposal, NRCGT applies at the residential rates (18%/24% individuals; corporation tax rate for companies) with a 60-day report and pay obligation. Non-resident FHL owners who previously benefited from BADR should model the post-abolition CGT position carefully — the shift from 10% to 24% on large gains is substantial. Double taxation treaty relief may be available depending on the individual's country of residence

Frequently asked questions