Furnished Holiday Let Tax Changes 2025/26: How to Report Former FHL Income

If you own a Furnished Holiday Let (FHL), whether advertised through Airbnb, Booking.com, Vrbo or other holiday letting platforms, there are important tax changes which took effect from 6 April 2025 when the special Furnished Holiday Let (FHL) tax regime was abolished.

What are the Furnished Holiday Let tax changes from April 2025?

Before 6 April 2025, qualifying Furnished Holiday Lets benefited from a number of favourable tax rules that distinguished them from other rental properties. These included:

• Full tax relief for mortgage interest and finance costs.
• Capital allowances on qualifying furniture, fixtures and equipment.
• Treatment as relevant earnings for pension contribution purposes.
• Access to certain Capital Gains Tax reliefs

From the 2025-26 tax year onwards, these special rules no longer apply and former FHLs are now taxed in the same way as other UK or overseas property income.

How is it now reported on the tax return?

One of the biggest practical changes is the way former Furnished Holiday Lets are reported on Self Assessment tax returns.

For 2025-26 onwards, there is no longer a separate section for reporting income from a Furnished Holiday Let business. Instead:

• UK Furnished Holiday Lets are treated as part of your UK property business.
• Overseas Furnished Holiday Lets are treated as part of your overseas property business.
• Rental income and expenses are reported alongside your other property income under the standard property income rules.

In practice, this means former FHL income will now be included within the UK Property pages or Foreign pages of your tax return, rather than being reported separately as a Furnished Holiday Let.

While this may appear to be a simple reporting change, it reflects a wider shift in how these properties are taxed.

What happens to brought forward Furnished Holiday Let losses?

The good news is that any losses generated under the former FHL regime are not lost.

• Historical UK FHL losses carry forward and can be set against future profits of the UK property business.
• Historical overseas FHL losses carry forward and can be set against future profits of the overseas property business.

This means historic losses should still be reviewed and considered when preparing your tax return.

Mortgage interest relief for former Furnished Holiday Lets

Mortgage interest is one area where many property owners may notice a difference.

Before 6 April 2025, qualifying FHL finance costs such as mortgage interest were generally deductible in full when working out taxable profit.

From 2025-26 onwards, former FHLs are subject to the same finance cost restrictions rules as other residential properties, with relief generally being given as a basic rate tax reduction rather than a deduction against rental income.

Capital allowances for former Furnished Holiday Lets

Under the previous Furnished Holiday Let rules, owners could claim capital allowances on qualifying expenditure, including furniture, fixtures and equipment used in the property.

From 6 April 2025, capital allowances are no longer available for most new expenditure incurred in a former FHL. Instead, landlords may be able to claim Replacement of Domestic Items Relief when replacing certain items within the property. However, this relief is more limited than the capital allowances regime and generally only applies to the replacement of:

• Furniture
• Furnishings
• Household appliances
• Kitchenware

It does not apply to improvements or capital expenditure on the property itself, such as extensions, structural alterations or other permanent enhancements.

There is, however, an important transitional rule. Where capital allowances had already been claimed before 6 April 2025, any remaining balance within the capital allowance pool can continue to be carried forward and relieved under the transitional rules.

As a result, property owners should review any existing capital allowance claims, and also consider whether expenditure incurred after 6 April 2025 can instead qualify for Replacement of Domestic Items Relief.

Pension contributions

Another change that may easily be overlooked is the impact on pension planning.

Before 6 April 2025, profits from a qualifying Furnished Holiday Let counted as relevant earnings when calculating how much an individual could contribute to a pension and receive tax relief for. From 2025-26 onwards, income from former FHLs no longer counts as relevant earnings for this purpose.

Capital Gains Tax reliefs after the abolition of the Furnished Holiday Let regime

A further consequence of the abolition of the FHL regime is the loss of access to certain Capital Gains Tax reliefs that were previously available to qualifying FHL businesses.

For disposals on or after 6 April 2025, reliefs such as Business Asset Disposal Relief, roll-over relief and gift relief are generally no longer available for FHL properties unless certain transitional conditions are met.

In particular, Business Asset Disposal Relief may still be relevant only where there was an actual cessation before 6 April 2025 and the disposal falls within the permitted post-cessation window and other qualifying conditions are met.

What should property owners do?

As the 2025-26 tax year is the first year affected by these changes, property owners should ensure that:

• Former FHL income is reported correctly within the property income pages on their tax return.
• Mortgage interest is claimed in with the rules for UK residential properties.
• Historic FHL losses are carried forward where appropriate.
• Existing capital allowance balances are reviewed.
• Pension contribution planning is reconsidered if it previously relied on FHL profits.

How can AAB help?

The abolition of the Furnished Holiday Let regime represents one of the most significant changes to property taxation in recent years. While the reporting process may appear simpler, the tax consequences can vary significantly depending on your circumstances.

If you own a former Furnished Holiday Let and would like to understand how these changes affect you, please do not hesitate to get in contact with Sarah Sargent, a member of our Private Client team, or your usual AAB contact.