Holiday let tax changes: what they mean and whether to switch to long-term letting

The furnished holiday let tax regime was abolished on 6 April 2025 for income tax and capital gains tax, and on 1 April 2025 for corporation tax. Holiday let income is now taxed in exactly the same way as ordinary residential property income, which removes the mortgage interest deductibility, capital allowances and capital gains reliefs that once set holiday lets apart from standard buy-to-lets. For many owners, particularly those with a mortgage and a property outside a high-occupancy tourist area, the change has tipped the balance toward long-term residential letting. This guide sets out exactly what changed, how a holiday let is taxed now, and how to switch to a long-term tenancy if the numbers no longer work.

What changed when the furnished holiday let regime was abolished

The furnished holiday let regime ended under the Finance (No. 2) Act 2024, with effect from 6 April 2025 for income tax and capital gains tax and from 1 April 2025 for corporation tax. From those dates, a property that previously qualified as a furnished holiday let is treated as part of an ordinary UK property business, with no separate reporting and none of the trading-style reliefs the designation used to unlock. HMRC sets the change out in its policy paper on the abolition of the regime. There were no transitional provisions for income tax, so the 2025/26 tax year, the return for which is due by 31 January 2027, is the first to fall entirely under the new rules.

The reliefs holiday let owners have lost

Four advantages disappeared on abolition, and together they account for most of the increase in holiday let owners' tax bills.

Full mortgage interest relief has gone. Holiday lets were previously exempt from the Section 24 finance cost restriction, so owners could deduct mortgage interest in full. From April 2025 that relief is given only as a basic-rate 20 per cent tax credit, the same restriction every other individual residential landlord has faced since 2020. For a higher-rate taxpayer with a sizeable mortgage, this single change can turn a cash-positive property into a tax loss.

Capital allowances on new expenditure have ended. Owners can no longer add the cost of furniture, fixtures and equipment to a capital allowances pool, and the standard residential rule, Replacement of Domestic Items relief, applies instead, covering like-for-like replacements rather than the original furnishing. Any pool of historical expenditure built up before April 2025 continues to attract writing-down allowances.

Business Asset Disposal Relief on sale has gone. A qualifying holiday let could previously be sold with the first £1 million of gains taxed at 10 per cent. Former holiday lets are now standard residential property for capital gains tax, so a disposal is taxed at 18 per cent for a basic-rate taxpayer and 24 per cent for a higher-rate taxpayer.

Pension relief has narrowed. Holiday let profits no longer count as relevant UK earnings, so they can no longer support tax-relievable personal pension contributions.

How a holiday let is taxed now

Holiday let income is now taxed as ordinary property income through self-assessment, on the same basis as a buy-to-let. Profits are rental income less allowable expenses, charged at your marginal rate of income tax, and the finance cost restriction applies to mortgage interest as described above. Allowable running costs such as cleaning, letting fees, insurance, utilities you pay and repairs remain fully deductible, and Replacement of Domestic Items relief covers like-for-like replacement of furnishings. Rental losses carry forward against future profits of the same property business.

The reporting regime is tightening alongside the tax change. Under Making Tax Digital for income tax, landlords with qualifying property and self-employment income above £50,000 must keep digital records and submit quarterly updates to HMRC from April 2026, with the £30,000 threshold following in April 2027. A former holiday let now sitting within your ordinary property income counts toward that threshold. Booking platforms have also reported host earnings to HMRC under the digital platform reporting rules since 2024, so undeclared nightly income is far easier to detect than it once was.

Business rates, council tax and the wider 2026 squeeze

Tax is not the only pressure that has built up around holiday lets. Whether a property pays business rates or council tax still turns on how much it is let: in England a property must be available for letting for at least 140 days and actually let for at least 70 days in a year to be assessed for business rates rather than council tax, after which small business rate relief may reduce the bill. A property that falls short now sits in council tax, where most English councils apply a second-home premium of up to 100 per cent, in effect doubling the bill.

Regulation is moving in the same direction, though some of it is still pending. As of June 2026, the mandatory national registration scheme for short-term lets in England, legislated under the Levelling-up and Regeneration Act 2023, has not yet gone live; the government has signalled commencement later in 2026, and the consultation response proposed civil penalties of up to £5,000 for operating without a registration number. The proposed C5 planning use class, which would formally separate short-term lets from homes, has been consulted on but is not yet in force. In Greater London, the Deregulation Act 2015 still caps entire-home short-term letting at 90 nights a year without planning permission. Scotland has required short-term let licensing since October 2022, and Wales began registration with the Welsh Revenue Authority during 2026. None of this affects a long-term residential tenancy, which is part of why some owners are stepping back from holiday letting altogether.

Should you switch your holiday let to a long-term rental?

For many mortgaged owners outside high-occupancy tourist and event locations, long-term letting now produces a comparable or better net return than holiday letting, with far less work. The headline nightly rate that makes a holiday let look lucrative only holds up until the recurring costs are stripped out: specialist mortgage rates, the utilities and council tax the owner carries between guests, cleaning and laundry of £70 to £120 per changeover, platform and management fees of 15 to 30 per cent, faster furnishing wear, and the voids between bookings. Once the old tax advantages are removed from the other side of the ledger, the gap that used to justify the effort narrows sharply.

The decisive variables are occupancy, location and your appetite for hands-on management. A property that fills 70 per cent of its nights in a well-regulated tourist town can still out-earn the equivalent long-term rent. A city flat competing on price against a saturated platform listing, carrying a mortgage and a second-home council tax premium, often will not. Model both options on real figures before deciding: August's rental cash flow calculator lets you compare net annual return under each model, and the rental yield calculator gives a clean figure for the long-term option. From working with self-managing landlords across the country, we have seen the abolition prompt many owners to model their true net return for the first time, and the result surprises them more often than not.

There is an alternative to exiting, and it is worth naming honestly. Some accountants recommend moving a holiday let into a limited company to restore full mortgage interest relief, which can suit higher-rate taxpayers building a portfolio. Incorporation carries its own stamp duty and capital gains consequences, so it is a decision for a qualified adviser rather than a default, and it sits within a broader set of choices covered in our guide to property investment strategies. For owners who simply want predictable income and less administration, the switch to long-term letting is usually the cleaner answer.

How to switch a holiday let to a long-term tenancy

If the long-term model fits better, the transition is straightforward when it is sequenced properly. Six steps cover it.

Start by modelling the net return both ways, so the decision rests on your actual figures rather than the headline rates. Next, wind the listing down in line with each platform's terms and honour bookings already taken, which protects your review history in case you ever return to holiday letting. Third, check your mortgage and lease before you market the property: a holiday let mortgage usually needs to be switched to a standard buy-to-let product with lender consent, and many leasehold agreements restrict the type of tenancy you can grant. Fourth, move your insurance from a holiday let policy to a standard landlord policy, because the two cover very different risks and a holiday let policy will not respond to a residential tenancy.

Fifth, refresh the property's compliance for a residential let. That means a current energy performance certificate, an electrical installation condition report, an annual gas safety certificate, working smoke and carbon monoxide alarms, deposit protection in an approved scheme, and Right to Rent checks on the incoming tenant. Keeping every certificate, renewal date and document in one place is exactly what August's compliance tracking is built for, and landlords tell us the certificate admin, not the cleaning, was the hidden cost of holiday letting they were most glad to leave behind.

Finally, set the tenancy up correctly under the current regime. Since the Renters' Rights Act 2025 commenced on 1 May 2026, new lettings in England are assured periodic tenancies from the outset, there is no Section 21 and no fixed term to fall back on, and you must give the tenant a written statement of terms. You will also need to register yourself and the property on the Private Rented Sector database once it opens, which the government expects later in 2026, before you can let lawfully or serve a valid possession notice. Treat the switch as entry into a new and more structured regime rather than a return to how long-term letting used to work. 

Frequently asked questions

Have the furnished holiday let tax changes definitely taken effect?

Yes. The regime was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax, under the Finance (No. 2) Act 2024. There were no transitional rules for income tax, so the change applies to the whole of the 2025/26 tax year and every year after it.

How is a holiday let taxed now?

As ordinary UK property income. Profits are taxed at your marginal rate through self-assessment, mortgage interest relief is limited to a basic-rate 20 per cent credit, and capital allowances and Business Asset Disposal Relief no longer apply. Allowable running costs and Replacement of Domestic Items relief remain available.

Can I still claim expenses on my holiday let?

Yes. The day-to-day costs of letting, such as cleaning, insurance, letting fees, repairs and the utilities you pay, remain fully deductible against rental income, and you can claim Replacement of Domestic Items relief when you replace furnishings on a like-for-like basis. What you have lost is capital allowances on new expenditure and the trading-style reliefs the FHL designation used to provide.

Should I move my holiday let into a limited company or switch to long-term letting?

Incorporation can restore full mortgage interest relief and suits some higher-rate taxpayers, but it triggers its own stamp duty and capital gains considerations and needs advice from a property accountant. Switching to a long-term tenancy is usually the simpler route for owners who want steady income and lighter administration. You can start for free and track compliance, rent and records for the whole portfolio from one dashboard once you make the move.