Furnished Holiday Let Tax Changes from April 2025: Key Updates
- Omar Aswat
- Jan 15, 2025
- 6 min read
Updated: Dec 23, 2025
Table of Contents
Introduction
The tax treatment of Furnished Holiday Lets (FHLs) is undergoing significant changes starting from April 2025. The government will repeal favourable FHL tax treatment, aligning it with rules for other residential rental properties. Announced in the 2024 Spring Budget, this change will raise tax bills and remove key reliefs for FHL owners.
Historically, FHLs have enjoyed a more favourable tax regime than other residential properties. These properties have enjoyed tax perks like mortgage interest deductions, capital allowances, and reliefs such as gift holdover and rollover relief. VAT advantages have also been present.
The new rules will remove these benefits and tax FHL income like any other residential property business income.
This blog explains FHL tax changes, who they affect, and how owners can reduce the impact before April 2025.
Key Takeaways:
Mortgage Interest Relief: From April 2025, higher-rate and additional-rate taxpayers will only receive a 20% tax credit on mortgage interest, reducing the tax relief they currently enjoy.
Capital Gains Tax (CGT): FHL owners will lose the ability to claim Business Asset Disposal Relief (BADR) and rollover relief. CGT on sales of FHL properties will be taxed at the 24% residential property rate instead of the current lower business rate of 10%.
Capital Allowances: From April 2025, FHL owners will only be able to claim capital allowances on the replacement of domestic items (e.g., furniture, white goods). Existing capital allowance pools will continue, but new expenditure will be subject to new rules.
Pension Contributions: FHL profits will no longer be considered relevant earnings for pension contribution purposes, affecting how FHL owners calculate their maximum pension relief.
Joint Ownership: If a property is jointly owned in unequal shares, FHL owners will need to submit Form 17 to HMRC after April 2025.
Actions Before April 2025: To maximise current tax advantages, FHL owners should consider selling properties or making capital improvements before the April 2025 deadline.
What is a Furnished Holiday Let (FHL)?
A Furnished Holiday Let is a property that is available for short-term rental for a minimum of 210 days per year and is actually let out for at least 105 days. These properties must be furnished to a standard suitable for short-term accommodation and cannot be used as a long-term let for periods exceeding 31 days.
HMRC has historically treated FHLs as a trade for tax purposes, giving owners several advantages over traditional residential property landlords. The main benefit is access to broader tax reliefs and deductions, similar to those available to traditional business owners.
Current Tax Benefits for FHLs
Before the 2025 changes, owners of Furnished Holiday Lets have enjoyed several key tax benefits that set them apart from other property investors. These include:
1. Mortgage Interest Deduction
Currently, FHL owners can deduct mortgage interest expenses from their rental income, reducing their overall tax liability. For higher-rate and additional-rate taxpayers, this has provided significant tax savings.
2. Capital Allowances
FHL owners can claim capital allowances on expenses like furniture, white goods, and certain property improvements. This has allowed many FHL owners to reduce their taxable income through the depreciation of their assets.
3. Capital Gains Tax Reliefs
FHL owners are eligible for Business Asset Disposal Relief (BADR), which allows them to sell FHL properties and pay a reduced rate of 10% CGT on the first £1 million of lifetime gains. FHL owners could defer CGT by reinvesting sale proceeds into another qualifying property using rollover relief.
4. Pension Contributions
HMRC has historically treated income from an FHL business as relevant earnings, allowing owners to make larger pension contributions. This could result in significant tax savings on retirement savings.
The government will implement new rules in April 2025 that will significantly change how FHL income and gains are taxed. These changes include:
1. Mortgage Interest Relief
From April 2025, mortgage interest for FHL properties will no longer be deducted as a business expense. Instead, it will be treated as a 20% tax credit for higher-rate and additional-rate taxpayers, which is a significant reduction compared to the current relief of 40% and 45%, respectively.
Currently, FHL owners can access Business Asset Disposal Relief (BADR), allowing them to pay a reduced CGT rate of 10% on up to £1 million of lifetime gains. From April 2025, FHL properties will be subject to the 24% residential property CGT rate, and owners will lose access to BADR and rollover relief for FHL disposals. This means higher taxes on any future sales of FHL properties.
3. Capital Allowances
The ability to claim capital allowances will also be restricted. From April 2025, owners can no longer claim capital allowances for improvements to FHL properties. However, they will still be able to claim for replacing domestic items, such as furniture or white goods. Existing capital allowance pools will be carried forward, but any new expenditure will be subject to the new property business rules.
4. Pension Contributions
From April 2025, FHL profits will no longer be considered relevant earnings for pension contributions. This means FHL owners will no longer be able to use their rental profits to calculate the maximum amount they can contribute to pensions, potentially reducing their pension savings opportunities.
5. Joint Ownership Changes
FHL properties that are jointly owned in unequal shares will require a Form 17 submission to HMRC after April 2025. Failure to submit this form within 60 days of the relevant date could result in an automatic 50:50 split of the property income for tax purposes.
Potential Impact on FHL Owners
The changes to FHL tax rules will primarily impact owners of furnished holiday lets who have been relying on the current tax advantages. The
reduction in mortgage interest relief and the loss of Business Asset Disposal Relief are likely to be the most significant changes for owners looking to sell their properties or reduce their tax bills.
The increased CGT rates could lead to higher taxes for those planning to sell FHL properties after the rule change. Likewise, the restriction on capital allowances could reduce the ability to offset expenses related to property improvements, making it more difficult for owners to manage their tax burden.
For FHL owners planning for retirement, the loss of pension contribution relief could result in the need for alternative strategies to maximise retirement savings.
How to Prepare for FHL Tax Changes 2025
Given the significant changes ahead, FHL owners should consider the following actions:
1. Sell or Refinance Before April 2025
If you're considering selling your FHL property, doing so before April 2025 could allow you to benefit from the current tax advantages, including Business Asset Disposal Relief and the lower CGT rate. Similarly, refinancing before the rule change could allow you to lock in higher mortgage interest deductions.
2. Make Capital Improvements Before April 2025
To maximise the available capital allowances, consider making necessary improvements or replacements to your FHL property before April 2025. Any new capital expenditures after that date will be subject to the new rules, which offer fewer tax benefits.
3. Consider Alternative Pension Strategies
Since HMRC will no longer treat FHL profits as relevant earnings for pension purposes, you may want to explore other pension contribution options or consider tax-efficient savings plans to prepare for retirement.
Final Thoughts on FHL Tax Changes 2025
The upcoming tax changes for Furnished Holiday Lets (FHLs) in April 2025 represent a major shift for property owners. These reforms, which include the loss of key benefits like Business Asset Disposal Relief (BADR) and mortgage interest deductions, will significantly impact the financial landscape for FHL owners. Preparing now is essential to mitigating the potential financial burden.
If you’re an FHL owner wondering how to navigate these changes, consider taking proactive steps such as selling your property, making capital improvements, or revising your retirement plans. Acting before the April 2025 deadline could help you retain some of the current tax benefits.
Get Expert Advice from ASWATAX
Don’t face these changes alone. At ASWATAX, we specialise in helping property owners like you adapt to FHL tax reforms. Our experienced team offers tailored advice to help you reduce tax liabilities and optimise your financial strategy.
Contact ASWATAX today to schedule a consultation and ensure you’re fully prepared for the 2025 FHL tax changes.
Meet Omar
Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Omar and ASWATAX can do for you.
*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.
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