If you own a holiday letting property, you may have heard that the Furnished Holiday Lettings (FHLs) regime was abolished on 6 April 2025. This significant change will have important implications for how your property income is taxed. At A&C Chartered Accountants, we want to help you navigate these changes and understand what they mean for you.
What happens now?
With the abolition of the FHL regime, your holiday letting property will now form part of either your main UK property business or overseas property business. As a result, several tax advantages that were previously available under the FHL rules will no longer apply. These changes include:
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Restriction of loan interest relief: Tax relief on loan interest related to the property will now be restricted to the basic rate of 20 per cent.
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Loss of capital allowances: New capital expenditure will generally not qualify for capital allowances. Instead, you may be able to claim relief under the replacement of domestic items relief.
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Withdrawal of certain Capital Gains Tax reliefs: Reliefs such as Business Asset Disposal Relief, Gift Relief and Rollover Relief, which applied to trading business assets, will no longer be available.
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Impact on pension contributions: Income from your property will no longer count as ‘relevant UK earnings’ when calculating your maximum pension relief.
These changes may feel like a setback, but it is important to know that some transitional measures have been put in place to ease the impact.
What transitional measures are available?
Although the abolition of FHLs brings some restrictions, there are still ways to mitigate the effects through transitional provisions:
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Carrying forward losses: If your FHL business generated trading losses before 6 April 2025, these losses can be carried forward and offset against profits from your UK or overseas property business in future years.
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Carrying forward capital allowances pools: If your FHL business had a capital allowances pool as at 5 April 2025, this can be carried forward into your general property business. You can continue to claim writing-down allowances on this existing pool.
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Continuing eligibility for Business Asset Disposal Relief: If your FHL business ceased before 6 April 2025, you may still qualify for Business Asset Disposal Relief on a disposal of the property, provided the disposal takes place within the usual three-year window following cessation.
What should you do next?
The abolition of the Furnished Holiday Lettings regime marks a big shift in the tax landscape for holiday property owners. Whether you are unsure how these changes affect you, or want to explore the available transitional measures, it is important to seek professional advice.
At A&C Chartered Accountants, we are here to guide you through this transition and ensure you continue to make the most of your property investment. Our team of tax specialists can help you understand your new tax position and identify opportunities to maximise reliefs.
If your property previously qualified as a Furnished Holiday Let and you have questions about the new tax rules, get in touch with us today. Let us help you stay compliant and plan effectively for the future.
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