Furnished Holiday Lettings Tax Abolition: What STL Hosts Need to Know

The Furnished Holiday Lettings tax regime is gone. Here is what that actually means.

For years, furnished holiday lettings enjoyed a preferential tax position. You could claim capital allowances on furniture and equipment. You could use the income for pension contribution relief. Mortgage interest was fully deductible against rental income. Losses could be set against other income.

From 6 April 2025, all of that is gone. The FHL regime was abolished in the Autumn Budget 2024 and took effect at the start of the 2025/26 tax year.

If you run a short-term let, your tax position has fundamentally changed. This guide covers what was lost, what replaces it, and what you should be doing about it now.

What the FHL regime gave you

Under the old rules, if your property qualified as a Furnished Holiday Letting (available for at least 210 days, actually let for at least 105 days, with no single letting exceeding 31 consecutive days for more than 155 days), you got:

• Full mortgage interest deduction against rental income (not the 20% tax credit that applies to normal BTL)
• Capital allowances on furniture, equipment, and fixtures - meaning you could deduct the cost over time
• Relevant earnings for pension purposes - FHL income counted toward your annual pension contribution allowance
• Loss relief - FHL losses could be set against other income, not ring-fenced to property income
• Business Asset Disposal Relief (formerly Entrepreneurs' Relief) on sale - 10% CGT rate on up to £1m of qualifying gains
• Business Property Relief for inheritance tax purposes in some circumstances

This was a significant package. A higher-rate taxpayer with a mortgage could save thousands per year compared to the standard property income rules.

What changed on 6 April 2025

All the above benefits were removed. From the 2025/26 tax year:

Mortgage interest

STL mortgage interest is now treated the same as BTL. For individual landlords, you get a 20% tax credit instead of a full deduction. This hits higher-rate taxpayers hardest - if you are in the 40% band, the effective cost of your mortgage interest has roughly doubled.

Properties held in a limited company are unaffected by this specific change (companies always deduct interest as a business expense).

Capital allowances

Gone. You can no longer claim capital allowances on furniture and equipment. The replacement is the standard property income rules, which allow a deduction for replacing domestic items (the Replacement of Domestic Items Relief) but not for initial purchase costs.

If you bought a new sofa for a holiday let in 2024/25, you could claim the cost. If you buy one in 2025/26, you cannot - unless it replaces an existing item.

Pension contributions

FHL income no longer counts as relevant earnings. If your only income is from STLs and you have been making pension contributions on the basis that FHL income qualified, check with your accountant. You may need to reduce contributions or find other qualifying earnings.

Loss relief

STL losses are now ring-fenced to property income, the same as BTL. You cannot set a loss from your holiday let against your salary or other income. Losses carry forward against future property income only.

Capital Gains Tax

Business Asset Disposal Relief no longer applies to STL property sales. You pay standard CGT rates (18% basic rate, 24% higher rate for residential property as of April 2025). The difference between 10% and 24% on a significant gain is material.

Inheritance Tax

Business Property Relief is no longer available for STL properties under the FHL rules. STL properties are treated as investment property for IHT purposes, subject to the standard nil-rate band and residence nil-rate band.

Transitional rules

The abolition was not entirely cliff-edge. Some transitional provisions apply:

• Capital allowances - writing-down allowances for assets already in the capital allowances pool continue until the pool is exhausted. You do not lose unrelieved expenditure, but you cannot add new items to the pool
• Losses - FHL losses carried forward from pre-April 2025 years can still be set against future FHL income (now treated as property income) but not against other income types
• CGT - gains on properties held before April 2025 are computed using the normal base cost rules. There is no rebasing

Check with your accountant on the specifics of your transitional position. The detail matters and depends on your individual circumstances.

What this means for STL profitability

The honest assessment: short-term letting is less tax-efficient than it was.

For a higher-rate taxpayer with a mortgage, the loss of full interest deduction alone can add thousands to the annual tax bill. Losing capital allowances on furnishing costs adds more. Losing the 10% CGT rate on exit makes the property harder to sell tax-efficiently.

This does not mean STL is no longer viable. It means:

• Margins matter more. You need stronger occupancy and higher average nightly rates to offset the increased tax burden
• Corporate structures may now be more attractive. Companies still deduct mortgage interest fully and can claim capital allowances on equipment. If you are scaling beyond one or two properties, discuss incorporation with your accountant
• Property selection is more important. Low-yield STL properties that only worked because of FHL tax breaks may no longer make financial sense
• Direct bookings are more valuable. Saving 15-20% in OTA commissions goes further when your tax bill is higher

What you should do now

1. Talk to your accountant. If you have not already had a conversation about the FHL abolition, do it this tax year. Your accountant needs to adjust your self-assessment approach and may need to revise estimated payments on account

2. Review your mortgage structure. If you are a higher-rate taxpayer holding STL properties personally with large mortgages, the numbers may now favour a limited company structure for new acquisitions. Do not transfer existing properties without advice - there are CGT and stamp duty implications

3. Track your expenses properly. With capital allowances gone, Replacement of Domestic Items Relief is your main furniture deduction. This only applies to replacing like-for-like items, not upgrading. Keep records of what you are replacing and what it cost

4. Revisit your pricing. If your nightly rate was set on the assumption of FHL tax benefits, recalculate your break-even and target margin under the new rules

5. Consider your exit strategy. If you were planning to sell and claim Business Asset Disposal Relief, that option is gone. Factor in standard CGT rates when planning any disposal

Limited company vs personal ownership

The FHL abolition has shifted the balance for some hosts. Key differences:

There is no universal right answer. Company structures suit some hosts and not others. The mortgage market for limited company STL lending is smaller and more expensive, which can offset the tax savings. Get specific advice.

How SelfLet Stays helps

SelfLet Stays tracks your rental income, expenses, and occupancy across all properties and all booking channels. The finance module gives you per-property and per-channel breakdowns so you can see exactly where your margins sit under the new tax rules. When your accountant asks for a tax year summary, it is one export.