The Furnished Holiday Lettings (FHL) regime was abolished from 6 April 2025. For nearly four decades, qualifying FHLs were treated more like a trade than a rental, unlocking capital allowances, business asset disposal relief, pension-relevant earnings, and full interest deduction. All of that has gone. We are now in the second tax year of the new world, and the planning conversations are very different.
What changed
From 6 April 2025, FHLs are taxed as ordinary property rental businesses. Specifically:
- Finance costs are now subject to Section 24, with only a basic-rate credit.
- Capital allowances on new fixtures and fittings are no longer available, although replacement of domestic items relief continues.
- Profits are no longer relevant earnings for pension contributions.
- Gains on disposal no longer qualify for Business Asset Disposal Relief (10% rate). They face standard residential CGT rates.
- Rollover relief and gift holdover relief on FHL assets ended.
Three real-world responses
Convert to long lets
If a coastal cottage no longer carries the FHL tax wrapper, the operational hassle of weekly turnover, cleaning, and marketing fees may not justify the gross-yield premium. We have helped owners convert to assured shorthold tenancies, often improving net yield once you strip out 25% to 35% in OTA commissions and cleaning. Long lets also reduce VAT exposure for owners over the threshold.
Continue short-letting, professionalise the business
For high-demand locations (Cotswolds, Lake District, Cornwall, central London), the gross income still justifies the model. The tax wrapper is worse, but income remains strong. We help these owners:
- Restructure into a limited company where leverage and personal tax band justify the costs.
- Capture every legitimate expense through structured bookkeeping, particularly utilities apportioned by occupancy, deep-clean costs, and management fees.
- Plan for VAT once turnover approaches GBP 90,000, including the option of the Tour Operator Margin Scheme where applicable.
Sell before further reforms
For owners with significant pregnant gains who relied on BADR, the post-April 2025 disposal landscape is materially worse. The 28% residential CGT rate (24% from April 2024) compares poorly with the 10% BADR rate that was available pre-reform. Some owners accelerated disposals into 2024-25; others have decided to hold for income but rule out future capital appreciation as a primary strategy.
The capital allowances cliff edge
Capital allowances claimed before April 2025 do not need to be repaid, but no new claims can be made. If you carried out a refurbishment in late 2024 or early 2025, we still have a window to capture qualifying expenditure on integral features and plant. We have recovered four and five-figure refunds through retrospective capital allowance reviews on properties refurbished in the run-up to abolition.
VAT and the GBP 90,000 question
Short-term holiday accommodation is standard-rated for VAT. Owners breaching the GBP 90,000 threshold must register. This is a sharp cliff edge that often surprises growing operators. Our VAT team handles partial exemption, the Flat Rate Scheme assessment, and quarterly returns under Making Tax Digital.
Pensions and partners
Losing FHL status removed a pension-funding route for owners who relied on rental profits as relevant earnings. We rebuild retirement plans using salary, dividend, or trading income from elsewhere. For couples, splitting beneficial ownership through declarations of trust can also rebalance the income tax position.
What to do this quarter
If you own an FHL and have not reviewed structure since April 2025, you are likely overpaying. We offer a fixed-fee FHL transition review covering tax position, ownership structure, VAT exposure, and disposal modelling. Get in touch or explore our property and hospitality services.