Furnished holiday let (FHL)
Important: The furnished holiday let (FHL) tax regime was abolished on 6 April 2025 (1 April 2025 for companies). Properties previously qualifying as FHLs are now taxed as standard residential rental income. The term FHL remains in common use to describe short-term holiday accommodation, but it no longer carries any special tax status. This entry explains what the term means, what the pre-abolition regime involved, and what the current tax and legal position is.
A furnished holiday let is a residential property made available for short-term stays, typically from a single night to a few weeks, to members of the public on a commercial basis. The property is fully furnished and self-catering. Guests book for defined periods and occupy the property on a holiday licence or short holiday tenancy, not an assured tenancy, because the property is not their only or main home.
What the FHL tax regime was
Before 6 April 2025, a property that met specific HMRC conditions qualified as an FHL for income tax and capital gains tax purposes, and was treated more like a trading business than an ordinary rental property. The qualifying conditions under the Income Tax (Trading and Other Income) Act 2005 were:
The property had to be in the UK or European Economic Area and available for commercial letting for at least 210 days in the tax year
It had to be actually let to paying guests for at least 105 of those 210 days
No single letting to the same person could exceed 31 consecutive days (to exclude long-term occupation)
The letting had to be conducted on a commercial basis with the intention of making a profit
Properties meeting these conditions could benefit from full mortgage interest deductibility against rental income (rather than the 20% credit that applies to other landlords), capital allowances on furniture and equipment, Business Asset Disposal Relief on gains (reducing the CGT rate to 10% on the first £1m of lifetime gains), rollover and holdover relief on disposal, and the ability to treat FHL profits as relevant UK earnings for pension contribution purposes.
What changed on 6 April 2025
The FHL regime was abolished by the Finance Act 2025, following the announcement in the Spring Budget 2024. From 6 April 2025, income and gains from holiday lets form part of the owner's UK property business and are taxed in the same way as income from any other residential letting. The specific changes are:
Mortgage interest: Relief is now restricted to a basic rate tax credit of 20% of finance costs, matching the position for other residential landlords. Full deductibility no longer applies for individual owners. Companies continue to receive full relief as a business expense.
Capital allowances: No new capital allowances can be claimed on furniture, fixtures, or equipment purchased from 6 April 2025 onwards. Existing unclaimed balances in capital allowance pools can continue to be written down until exhausted. The Replacement of Domestic Items Relief, available to all residential landlords, applies to movable items such as beds, sofas, white goods, and kitchenware.
Capital gains tax reliefs: Business Asset Disposal Relief (the 10% CGT rate on the first £1m of lifetime gains), rollover relief, and holdover relief no longer apply to holiday let disposals. Gains on disposal are now subject to the standard residential property CGT rate of up to 24%.
Pension contributions: FHL profits no longer count as relevant UK earnings for the purpose of calculating pension contribution tax relief.
What still applies: General allowable expenses, including cleaning, utilities, insurance, letting agent fees, maintenance, and advertising, remain deductible against holiday let income in the same way as for other rental properties. HMRC's guidance on the abolition sets out the transitional rules and loss treatment in detail.
The tax treatment of income from a holiday let now mirrors a standard buy-to-let in all material respects.
The legal position for guests
From a housing law perspective, holiday lets remain distinct from ordinary residential tenancies regardless of the tax changes. An FHL arrangement is typically a holiday licence or short holiday tenancy rather than an assured tenancy, because the occupier does not use the property as their only or main home. When the booking period ends, the guest is expected to leave without the owner needing to serve notice or obtain a possession order. The Renters' Rights Act possession grounds and tenancy deposit protection rules that apply to standard residential lets do not apply to genuine holiday bookings.
However, if a guest uses the property as their main residence, or bookings become effectively continuous long-term occupation, a court or tribunal could determine that an assured tenancy has arisen, bringing the full weight of housing law and Renters' Rights Act protections into play. Owners should maintain clear written booking terms, avoid informal rolling occupation, and take legal advice before allowing extended stays.
Local regulations and planning
Holiday lets are subject to increasing local regulation in England. In London, short-term letting of an entire home is restricted to 90 nights per calendar year without planning permission for a change of use. Several local authorities, including Edinburgh, Cornwall, and parts of Wales, have introduced or are considering licensing schemes requiring registration, safety compliance certification, and in some cases planning consent before a property can be operated as a holiday let. Some councils have also doubled council tax on second homes and holiday lets where properties are not occupied as a primary residence. Owners should check the position in their local authority area before committing to a holiday let strategy.
For mortgage purposes, most standard buy-to-let mortgages do not permit short-term holiday letting; a specialist holiday let mortgage is typically required. Owners of holiday lets can track rental income, expenses, and document storage across multiple properties using August's expenses tracking feature, useful for maintaining the accurate records HMRC now requires for holiday let income reported as part of a UK property business.
For an assessment of whether short-term holiday letting remains profitable after the tax changes, see the article on whether short-term letting is still profitable in the UK.
Frequently asked questions
Is the FHL tax regime still available?
No. The FHL tax regime was abolished on 6 April 2025 for income tax and capital gains tax, and on 1 April 2025 for corporation tax. Properties previously qualifying as FHLs are now taxed as standard residential rental income. There are no transitional reliefs, the abolition applies from the start of the 2025/26 tax year with no grandfathering of existing FHL status.
What were the qualifying conditions for an FHL before abolition?
A property had to be available for commercial letting to the public for at least 210 days in the tax year, actually let to paying guests for at least 105 of those days, and no single letting to the same person could exceed 31 consecutive days. The property also had to be located in the UK or EEA and let with the intention of making a profit.
Can I still claim expenses on a holiday let after April 2025?
Yes. The abolition of the FHL regime did not remove the right to claim allowable expenses. Cleaning, utilities, insurance, letting agent fees, advertising, maintenance, and the Replacement of Domestic Items Relief for movable furniture and appliances can still be deducted from holiday let income. What changed is that capital allowances on new fixtures and equipment, full mortgage interest deductibility, and the business-related CGT reliefs are no longer available.
Does a holiday let need a special mortgage?
In most cases, yes. Standard buy-to-let mortgages typically prohibit short-term or holiday letting. Lenders who offer holiday let mortgages apply different criteria, including income assessments based on projected occupancy rather than assured rent, and typically charge higher rates than standard buy-to-let products. Owners should check their existing mortgage terms before listing a property on a short-term platform and obtain a holiday let mortgage if required.
What happens if a guest stays beyond their booking?
If a guest refuses to leave when their booking ends, the owner can seek a court order for possession without needing to follow the Section 8 process that applies to assured tenants. However, if the guest can show they have been occupying the property as their main home over an extended period, a court could find that an assured tenancy has arisen, which would make the possession process significantly more complex. Clear written booking terms and avoidance of rolling arrangements are the most effective safeguards.
