The FHL abolition was announced in the Spring Budget 2024 and enacted in Finance Act 2024. There were no transitional provisions — the change took effect immediately from 6 April 2025 (the start of the 2025/26 tax year). For landlords who built their property investment strategy around the FHL tax advantages, this is a significant and irreversible change to the tax landscape.
The core impact is on Capital Gains Tax: FHL properties that previously qualified for Business Asset Disposal Relief (BADR) at 10% now face the standard residential property CGT rates of 18% (basic rate) and 24% (higher rate). For a higher-rate taxpayer selling a property worth £300,000 with a £100,000 gain, the difference is £14,000 in additional CGT.
What the FHL regime provided — and what is now lost
FHL landlords lost four major tax advantages from 6 April 2025:
- Business Asset Disposal Relief: qualifying FHL properties attracted a 10% CGT rate on disposal gains (compared to 18%/24% for standard residential property). BADR is no longer available on any FHL property disposal from 6 April 2025
- Capital allowances: FHL landlords could claim capital allowances on furniture, furnishings, and equipment at the full cost (Annual Investment Allowance), including the first purchase of items. From April 2025, only the replacement of domestic items relief applies — claiming the cost of replacing (not initial purchase of) qualifying domestic items
- Pension contribution eligibility: FHL income was treated as earned income, enabling pension contributions up to the FHL profit level and generating pension tax relief. Standard rental income is unearned and cannot fund pension contributions beyond other earned income
- Loss offset: FHL losses could previously be carried forward and set only against future FHL income. From 2025/26, any FHL losses carried forward to 5 April 2025 can be set against general property income — a rare beneficial transitional provision
- Finance cost deduction: FHLs were previously exempt from the Section 24 finance cost restriction. From 6 April 2025, Section 24 applies in full to FHL mortgage interest — higher-rate FHL landlords with mortgages face additional tax from the addback
Effect on existing FHL property owners
The impact depends on your ownership position and future plans:
- Immediate effect from 6 April 2025: there is no grandfathering. All FHL properties are treated as standard rental properties from the 2025/26 tax year regardless of how long they qualified as FHLs
- CGT on future disposals: any FHL property sold from 6 April 2025 onwards is taxed at standard residential CGT rates. BADR is not available even for properties that qualified as FHLs for many years
- Section 24 now applies: if your FHL had a mortgage, finance costs were previously deductible in full. From April 2025, the 20% basic rate credit replaces the full deduction — higher-rate FHL landlords face an immediate tax increase
- Pension contributions: if you funded pension contributions from FHL income and have no other earned income, you can no longer use rental income to justify pension contributions above the £3,600 basic limit (the minimum allowable without earned income)
- Income reporting: from 2025/26, report FHL income on the property pages (SA105) as standard rental income. There is no longer a separate FHL section on the Self Assessment return
CGT implications for selling former FHL properties
The CGT cost of selling has increased significantly post-abolition:
- CGT rates: basic rate taxpayers pay 18% on residential property gains; higher-rate taxpayers pay 24% (from 30 October 2024). Previously qualifying FHL disposals attracted 10% under BADR
- Annual Exempt Amount: the CGT annual exempt amount is £3,000 (2025/26). Gains above this are taxable at the rates above
- 60-day reporting: CGT on residential property disposal must be reported and paid within 60 days of completion via HMRC's UK Property Account. This applies to all former FHL properties — BADR disposals previously also required this reporting
- Rollover and holdover relief: standard rollover relief (deferring CGT by reinvesting in business assets) is no longer available for FHL disposals. Holdover relief for gifts of business assets is also no longer available
- Principal private residence relief: if you used the FHL as your own home for part of the ownership period, PPR may reduce the gain — the period of FHL letting will not attract PPR, but periods of occupation may. Seek specialist advice on whether any PPR applies to your property
Short-term letting after the FHL abolition
Holiday and short-term letting remains legal — compliance rules still apply:
- Tax: all income from short-term or holiday letting must be declared on Self Assessment under property income. The Rent-a-Room relief (£7,500 annual exemption) applies only to rooms in your main home — not to separately let properties
- Planning: in England, short-term letting of a whole property may require planning permission for a change of use to short-term let use class (introduced under the Levelling-Up and Regeneration Act 2023). London short-term letting by permanent residents is limited to 90 nights per year without planning permission
- Local licensing: some councils operate short-term let licensing schemes. Check your local council's current requirements before letting — failure to hold a required licence may be a criminal offence
- Platform reporting: Airbnb, Vrbo, and similar platforms report UK host income to HMRC under the OECD DAC7 reporting rules. HMRC cross-references this with declared property income — ensure all platform income is correctly declared
- Mortgage: most residential mortgages prohibit short-term or holiday letting. A specialist holiday let or short-term let mortgage product is required — these typically have different LTV limits, rates, and lender conditions
Frequently asked questions
I own a holiday cottage that qualified as an FHL — can I still sell it at 10% CGT?+
No. Business Asset Disposal Relief is no longer available on FHL properties disposed of from 6 April 2025 onwards. The 10% rate is gone regardless of how long the property previously qualified. The gain will be taxed at 18% (basic rate) or 24% (higher rate) depending on your total income in the year of disposal. If you were planning to sell, the removal of BADR should factor into the timing decision — but there is no mechanism to access the 10% rate for sales after the abolition date.
Can I still claim capital allowances on furniture bought for my holiday let?+
No — not on initial purchases. From 6 April 2025, the replacement of domestic items relief applies instead of capital allowances. You can claim the cost of replacing qualifying domestic items (like a sofa, bed, or washing machine) but not the first-time purchase of those items. Capital allowances on plant and machinery within the property (e.g. boilers, heating systems) may still apply — seek advice from your accountant on what qualifies under general capital allowance rules.
I have FHL losses from previous years carried forward — what happens to them?+
FHL losses carried forward to 5 April 2025 can be set against general property income from the 2025/26 tax year onwards. This is a beneficial transitional provision — you are no longer restricted to setting FHL losses only against FHL income. However, you cannot set FHL losses against non-property income (e.g. employment income or dividends) — they remain ring-fenced within property income.
Does the 90-day rule in London apply to my holiday let?+
The 90-day rule applies to short-term letting of a property that is the host's principal home. If you let your main residence on Airbnb for short periods while you are away, you can let it for up to 90 nights per year without planning permission for change of use. For properties that are not your principal home (including former FHLs), the short-term let use class rules may apply — check with your local council and seek planning advice if you intend to let for short periods regularly.