If you are searching for “furnished holiday let”, you may be looking for a tax status that no longer exists.
Holiday accommodation can still be furnished. It can still be let to paying guests. It may still be a sound business. What disappeared was the special Furnished Holiday Lettings tax regime, usually shortened to FHL.
That change matters because some of the most familiar advice about holiday lets is now out of date.
The FHL regime ended in April 2025
The special rules ceased to apply from:
- 6 April 2025 for Income Tax and Capital Gains Tax; and
- 1 April 2025 for Corporation Tax and Corporation Tax on chargeable gains.
HMRC’s guidance on the repeal confirms that the change applies to individuals and companies.
From the 2025 to 2026 tax year onwards, income from short-term holiday accommodation and self-catering properties is generally taxed under the usual residential property-business rules. The old FHL reliefs do not continue merely because a property still meets the former availability and occupancy tests.
The term “holiday let” remains useful. “FHL” no longer creates a separate favourable tax category.
What FHL status used to provide
Before repeal, qualifying furnished holiday accommodation received several treatments that ordinary residential property letting did not.
The main differences included:
- finance costs could be deducted when calculating taxable FHL profits for individuals, rather than being subject to the residential finance-cost restriction;
- qualifying plant and machinery could attract capital allowances;
- profits could count as relevant UK earnings for pension-contribution purposes;
- certain Capital Gains Tax reliefs associated with trading businesses could be available, including Business Asset Disposal Relief, gift relief and rollover relief, where their own conditions were met; and
- spouses and civil partners had more flexibility in allocating FHL income than under the default rule for jointly held property.
Those were meaningful differences, but they were never automatic tax-free benefits. Each relief had conditions, and owners still had to deal with ordinary issues such as VAT, record-keeping and local taxation.
How holiday-let income is treated now
For many owners, the income remains property income. Revenue expenses incurred wholly and exclusively for the property business may still be deductible, subject to the normal rules. Utilities, repairs, cleaning and consumables did not stop being potential business expenses because the FHL label disappeared.
The important changes sit around the special reliefs.
Finance costs for individual owners
Individuals with residential property income no longer deduct finance and mortgage interest in the old FHL manner. Relief is generally given through a basic-rate tax reduction, currently 20 per cent, subject to the residential property rules and the owner’s circumstances.
Companies are not subject to that individual landlord finance-cost restriction in the same way. That does not mean company ownership is automatically better. Corporation Tax, extraction of profits, finance availability, administration, sale and inheritance all affect the comparison.
Furniture, fixtures and equipment
Capital allowances are no longer generally available for new expenditure on fixtures, furniture and furnishings used within the dwelling under the former FHL treatment. Replacement of Domestic Items Relief may instead apply when an existing domestic item is replaced and the conditions are met.
Historic capital-allowance pools can have transitional treatment. Do not write them off or carry them forward based on a general summary. Ask the accountant who prepared the earlier claims.
Losses
Unused FHL losses became losses of the continuing UK or overseas property business, as appropriate. The ability to use them depends on the relevant property-income rules. Owners with carried-forward losses should make sure the opening position in the first post-repeal return is correct.
Capital gains
The special FHL treatment for Capital Gains Tax reliefs has gone for disposals after repeal, subject to transitional and anti-forestalling rules. The date and terms of a contract can matter. Anyone who bought, gifted, transferred or agreed to sell around April 2025 needs advice based on the documents, not a blog summary.
What did not change
The abolition did not close holiday-let businesses or force owners to switch to long-term tenancies. HMRC is explicit on this point. The activity continues as a property business until the owner genuinely ceases it.
Nor did the repeal itself change:
- VAT rules for holiday accommodation;
- council-tax or business-rates rules;
- planning permission;
- fire, gas or electrical-safety responsibilities; or
- the commercial demand for short stays.
Holiday accommodation remains standard-rated for VAT. Whether an owner must register depends on taxable turnover across the VAT registration rules, not on the old FHL tests. If turnover is near the threshold, or several properties or businesses are connected, obtain specific VAT advice.
The separate business-rates tests still use availability and actual letting criteria. It is possible for a property to be treated as self-catering accommodation for business rates while receiving no special FHL treatment for Income Tax.
This is where old terminology creates confusion. Tax, rates and planning are separate systems. Passing a test in one does not settle the others.
The decision to switch now has to stand on performance
Under the old regime, tax treatment could make holiday letting attractive even before the operating model was examined closely. That support has gone.
For a Sussex owner considering a move from long-term to short-term letting, the case should now be built from:
- realistic annual revenue rather than a peak-August nightly rate;
- occupancy across the whole year;
- platform, cleaning, laundry, utility and management costs;
- the cost of furnishing, compliance and ongoing reinvestment;
- the owner’s finance and tax position;
- the value of personal use and flexibility; and
- the operational demands of frequent guest stays.
That does not make holiday letting unviable. It removes one reason for choosing it.
In strong visitor locations, a well-positioned property can still earn more gross revenue than a conventional tenancy. It may also give the owner greater flexibility over personal use. Against that sit higher operating costs, variable demand, more wear, more active management and no guarantee that the gross premium becomes a better net return.
Read our breakdown of what a holiday let costs to run before comparing the two models.
What still makes a holiday let worth considering
The strongest properties solve a clear guest need. In Brighton that may be a well-designed home within easy reach of the seafront and the Lanes, a larger house that can accommodate a family group comfortably, or parking in a part of the city where it is scarce. Around Worthing and the wider West Sussex coast, access to the beach, the South Downs, family visits, events, work and longer mid-term stays can combine into a broader demand base.
The property also needs an operating advantage. Good photographs, a coherent listing, responsive service and active pricing are expected. They do not rescue an awkward layout, poor access or a lease that prohibits short stays.
Seasonality deserves particular attention. A property that performs exceptionally for eight summer weekends may still disappoint over the year. Conversely, a home with sensible work-stay demand, family capacity or proximity to venues may produce steadier revenue than its peak nightly rate suggests.
Our guide to whether a property is suitable for holiday letting covers those questions in detail.
Build the case on performance, not tax status
A Performance Review tests the property against its local market and shows what the numbers would have to look like to justify a switch.
Four conversations to have before changing course
1. The accountant
Ask for a comparison using your actual ownership, mortgage and marginal tax rate. Include the effect of the FHL repeal, existing losses or capital-allowance pools, VAT exposure and the tax consequences of a future sale.
2. The lender and insurer
Confirm that the finance and policy permit the intended use. A profitable forecast is irrelevant if the operating model breaches the mortgage or leaves the property uninsured.
3. The council or planning adviser
Establish the planning position and whether the property is likely to fall under council tax or business rates. Do not assume the old FHL occupancy tests answer either question.
4. A local operator
Test the revenue assumptions against real local demand, including seasonality, events, booking lead times, minimum stays, guest type and the property’s direct competition.
Each conversation answers a different question. None replaces the others.
Matthew’s view: the tax change improves the quality of the decision
Matthew · Founder, South House
The old tax regime gave owners a reason to focus on classification. The better question is now harder and more useful: does this property make sense as a short-term rental business?
I would not recommend switching a property because the long-term market has become frustrating, or because a nearby Airbnb displays a high nightly rate. I would want to know who will book it, when they will come, what they will pay, how much it will cost to deliver the stay and what the owner is giving up in return.
Some properties will still make a compelling case. Some will be better kept as long-term homes. Others may work through a mixture of short and mid-term demand. The absence of an FHL tax advantage makes an honest commercial assessment more important, not less.
South House works with homeowners and property investors across Brighton, Hove, Worthing and West Sussex. The first step is a Performance Review, which tests the property against its market and identifies the decisions that would shape its result.