FHL Abolition: What Holiday Let Owners Must Do Now

From 6 April 2025 your holiday let is taxed like a normal BTL: no FHL perks, Section 24 applies, and CGT reliefs are mostly gone.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. What the FHL regime gave you (until 5 April 2025)

Under ITTOIA 2005 Chapter 6 and related FHL rules (now repealed from 6 April 2025 for income tax), qualifying UK and EEA holiday lets enjoyed:

• Full mortgage interest deduction against FHL profits, no Section 24 restriction.
• Capital allowances on furniture, fixtures and equipment (beyond normal "replacement of domestic items" relief).
• Business Asset Disposal Relief (BADR) at 10% CGT on disposal, subject to lifetime limits.
• Trading-style treatment:
• Profits counted as relevant earnings for pension contributions.
• Losses could be offset against other FHL profits and, in some cases, other income.
• Access to CGT rollover and hold-over reliefs for reinvestment in business assets.

To qualify you had to meet: minimum days of availability and actual letting (210/105 day tests in recent years).

Government impact notes estimate around 170,000-230,000 properties across the UK were run as dedicated FHLs, with concentrations in coastal England and Wales.

2. What changes from 6 April 2025 (and transitional rules)

Finance Act 2025 (drafted in the FHL abolition papers) removes the special regime from:

• 6 April 2025 for individuals (income tax and CGT).
• 1 April 2025 for companies (Corporation Tax and CT on chargeable gains).

From 2025-26 onwards:

• Your FHL becomes part of your standard UK or overseas property business.
• You are taxed under the normal property income rules in ITTOIA 2005:
• Section 24 finance cost restriction applies: mortgage interest no longer deductible, you just get a 20% basic-rate credit.
• No new capital allowances on furniture; you use replacement of domestic items relief instead.
• FHL profits no longer count as relevant earnings for pension purposes.
• Access to CGT business reliefs (BADR at 10%, rollover/hold-over) ends for disposals on or after 6 April 2025.

Transitional points:

• 2024-25 is the last year you can treat profits as FHL income and claim FHL-specific capital allowances.
• Where an FHL business starts in 2024-25, FHL status can apply to that whole tax year (even if occupancy straddles April 2025), but not beyond.
• Capital allowance pools and some CGT reliefs have special transitional rules so you are not double-taxed on old expenditure -- you should have your accountant review your pool and balancing allowance position in 2024-25.

3. Tax treatment from 2025-26: FHL becomes "just a BTL"

From 2025-26 if you keep letting the property on short lets:

Income tax:

• Profits fall under standard UK property income rules.
• You deduct normal allowable expenses (repairs, insurance, cleaning, agents, utilities etc.).
• Mortgage interest and other finance costs give only a 20% tax credit (Section 24).

Capital allowances:

• No new capital allowances for furniture, equipment, or fixtures.
• You claim replacement of domestic items relief when you replace sofas, beds, appliances, etc., like any other landlord.

CGT on a future sale:

• Standard residential property CGT at 18%/24% (2025-26, 2026-27) applies.
• BADR and other business asset CGT reliefs no longer apply to post-April 2025 disposals.

Pensions:

• Holiday-let profits no longer count as "relevant UK earnings", which may reduce how much tax-relieved pension contribution you can make from 2025-26.

In other words, from April 2025 your holiday let is treated like any other BTL, even if you still run it as weekly lets on Airbnb.

4. BADR transitional CGT rates

You can still get business-style CGT rates for a limited period.

BADR on qualifying FHL disposals remains available, but the rate is no longer 10%.

After Budget 2024 and follow-up announcements, transitional BADR rates are:

• 2025-26: 14% on qualifying gains.
• 2026-27: 18% on qualifying gains.

After that, disposals fall into the standard residential CGT regime at 18%/24%.

You must meet BADR/FHL conditions at the point of disposal. For many owners, 2025-26 and 2026-27 are the last realistic windows to bank business-style CGT rates on holiday lets before everything moves to the full 24% band.

5. Worked example: Cornwall holiday let at GBP 25,000/year

Assumptions (realistic FHL numbers):

• Property value: GBP 300,000.
• Mortgage: GBP 150,000 interest-only at 5.5% = GBP 8,250/year interest.
• Gross FHL income: GBP 25,000/year.
• Other running costs (cleaning, linen, insurance, utilities, platform fees, etc.): GBP 7,000/year.
• Owner is a 40% higher-rate taxpayer.
• Ignore capital allowances detail and focus on finance cost change.

Before abolition (2024-25, FHL rules)

Profit:

• 25,000 - 7,000 - 8,250 = GBP 9,750 taxable profit (full interest deduction).

Tax at 40%:

• Income tax = 9,750 x 40% = GBP 3,900.

Net after tax and interest:

• 9,750 profit - 3,900 tax = GBP 5,850 cash return.

After abolition (from 2025-26, Section 24 applies)

Step 1 -- taxable profit before interest:

• 25,000 - 7,000 = GBP 18,000.

Step 2 -- tax at 40%:

• 18,000 x 40% = GBP 7,200.

Step 3 -- 20% credit on interest:

• 20% of 8,250 = GBP 1,650 credit.

Final tax:

• 7,200 - 1,650 = GBP 5,550.

Net after tax and interest:

• Real profit (25,000 - 7,000 - 8,250) = GBP 9,750.
• After tax 5,550, so net = GBP 4,200.

Comparison

• Pre-abolition net: GBP 5,850.
• Post-abolition net: GBP 4,200.
• You are GBP 1,650/year worse off, which is exactly the difference between 40% and 20% relief on the GBP 8,250 interest.

Add in:

• Loss of capital allowances (more tax when you refurnish).
• Higher CGT rate on exit.

For a heavily mortgaged holiday let this can effectively knock a full percentage point or more off yield and seriously erode the model.

6. Decision framework: sell, convert, or hold?

You have four realistic paths.

1. Sell while BADR is still available

Pros:

• Lock in 14% or 18% BADR rather than 24% residential.
• Avoid Section 24 on a high-LTV, interest-heavy asset.
• Bank capital to de-leverage other properties or redeploy.

Cons:

• SDLT friction if you reinvest.
• You give up future capital growth and any non-tax reasons you like the property.

Best suited to: Higher-rate taxpayers with weak net holiday-let yields after the changes. Owners planning to exit that property type anyway.

2. Convert to standard AST / long-term let

Pros:

• Simpler management, fewer changeovers.
• You are in the same tax position as post-abolition FHL anyway (Section 24 applies either way).

Cons:

• Possibly lower gross income than peak season holiday rates.
• Local planning/usage rules (especially in tourist areas) might restrict use.

Usually an option in areas with solid local rental demand, less so for very tourist-only spots.

3. Convert to serviced accommodation / short-term let without FHL status

Taxwise you are already there from April 2025:

• Income remains property income.
• Section 24 applies, no BADR, no FHL perks.

Any value here is operational, not tax: you might keep cashflow up via strong occupancy but your tax position will still be BTL-like. Do not expect SA to "recreate FHL tax treatment".

4. Hold as is under worse tax conditions

Pros:

• Keep a property you like in an area you trust.
• Accept lower net returns but hope rate cuts or price growth compensate.

Cons:

• Section 24 will bite harder if rates rise or LTV is high.
• You still lose CGT advantages and pension treatment.

This is what forums underestimate: you are now running a standard BTL with often worse void and maintenance profile.

7. What holiday-let owners should be doing now

Accountants and tax bodies are telling FHL owners:

Get your 2024-25 FHL claim right

• Make sure you meet occupancy tests and have evidence.
• Maximise legitimate capital allowances before 5 April 2025 where it makes sense.

Model your 2025-26 onwards numbers

• Run a full cashflow and tax comparison like the Cornwall example at your actual mortgage rate and LTV.
• Factor in realistic refurbishment cycles without capital allowances.

Decide whether any units should be sold under transitional BADR

• Prioritise the weakest performers and highest LTVs.
• Look at 2025-26 (14%) vs 2026-27 (18%) vs 24% thereafter for each property.

Review ownership splits and Form 17 for couples

• FHL rules gave some flexibility on profit allocation. From April 2025 most joint owners default to 50:50 unless a proper Form 17 is in place reflecting beneficial ownership.

Check your pension strategy

• If you were using FHL profits as relevant earnings, check how much relevant earnings you still have post-abolition and adjust contributions.

Plan for local non-tax changes

• Wales and some English councils are hitting holiday lets with council tax premiums and stricter business rates thresholds. Combine those with FHL abolition to decide if a property still stacks up.

8. Biggest post-abolition mistakes and forum myths

Mistakes

Assuming nothing changes if they keep letting weekly From April 2025 you are taxed like any other landlord, even if your booking pattern is the same.

Not realising Section 24 applies to them now Many holiday-let owners still model profits using full interest deduction. From 2025-26 they get a 20% credit only.

Missing the BADR window Waiting "to see what happens" and drifting past 2026-27, then discovering a sale is at 24% CGT instead of 14-18%.

Ignoring ownership splits for couples Failing to align beneficial ownership and Form 17 by 6 April 2025 and then being stuck with 50:50 income split on a now higher-tax asset.

Forum myths

"They will backtrack on the abolition once they see the impact on tourism." The draft and clarification notes from July and November 2024 and the subsequent Finance Act 2025 show a clear, cross-party intention to remove FHL advantages for good.

"Serviced accommodation is a loophole -- you still get FHL treatment." From April 2025, FHL rules are abolished; SA income is just property income unless you are running a full hotel-style trade in a different tax category.

"Incorporating the FHL saves it from abolition." No: the abolition applies to companies as well from 1 April 2025.

The honest position now is: treat your holiday lets like any other leveraged BTL. If the numbers work after Section 24 and at 24% CGT, keep them. If they do not, use 2025-26 and 2026-27 to exit on relatively favourable CGT terms.

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