Key facts
- The FHL regime was abolished from 6 April 2025 for Income Tax and 1 April 2025 for Corporation Tax.
- FHL income is now treated as ordinary property income, not trading income.
- Mortgage interest relief on former FHL properties is now restricted to the 20% tax credit (Section 24).
- Capital allowances on furniture and equipment in existing FHLs are subject to transitional rules.
- Former FHL properties no longer qualify for Business Asset Disposal Relief, rollover relief, or pension relevant earnings.
What Changed from April 2025
The FHL regime, which treated qualifying holiday lets as a trade for tax purposes, was abolished by the Finance Act 2025. From 6 April 2025 (Income Tax) and 1 April 2025 (Corporation Tax), FHL properties are taxed in the same way as any other rental property.[1]
| Tax Benefit | Under FHL Regime (to April 2025) | From April 2025 |
|---|---|---|
| Mortgage interest | Fully deductible from rental income | 20% tax credit only (Section 24) |
| Capital allowances | AIA and WDA on furniture and equipment | Replacement of Domestic Items Relief only |
| Pension relevant earnings | FHL income counted | Does not count |
| Business Asset Disposal Relief | Available on disposal | Not available |
| Rollover relief | Available | Not available |
| Loss relief | Set against other income | Restricted to property income only |
Transitional capital allowances: If you had a capital allowances pool on 5 April 2025, you can continue to claim writing-down allowances on the remaining balance. However, no new expenditure qualifies for capital allowances from 2025/26.[3]
What Were the FHL Rules?
For reference, to qualify as an FHL the property needed to meet three conditions in each tax year:
- Availability condition: Available for holiday letting for at least 210 days per year
- Letting condition: Actually let as holiday accommodation for at least 105 days per year
- Pattern of occupation: Not occupied by the same person for more than 31 consecutive days, and such longer lets do not exceed 155 days in total
Mortgage Interest: Section 24 Now Applies
The biggest financial impact for many former FHL landlords is the Section 24 mortgage interest restriction. Where FHL income previously allowed full deduction of mortgage interest from rental income, the restriction means:[2]
- You add your full rental income to your taxable income
- You receive a 20% tax credit on your finance costs
- If you are a higher-rate taxpayer, you effectively pay 20% more tax on your mortgage interest
Mitigation: Consider whether incorporating your FHL into a limited company makes sense. Companies are not subject to Section 24 and can deduct mortgage interest in full. However, transferring property triggers CGT and SDLT, so take professional advice. See Incorporating a Property Business.
Capital Gains Tax Impact
Former FHL properties are now taxed as residential property for CGT purposes, with no access to business reliefs:
- CGT rates: 18% (basic rate) or 24% (higher rate) on residential property gains
- No BADR: The 14% rate (2025/26) is no longer available
- No rollover relief: You cannot defer the gain by reinvesting in another property
- 60-day reporting: UK residential property disposals must be reported and CGT paid within 60 days
Planning for Former FHL Landlords
- Review your mortgage structure: With interest no longer fully deductible, paying down debt may be more tax-efficient
- Consider incorporation: A company structure avoids Section 24, but weigh up the transfer costs
- Pension contributions: If FHL income was your main source of relevant earnings, review how much you can contribute going forward
- Review the business case: Without the tax advantages, some FHL properties may not be financially viable — consider whether switching to long-term letting or selling is better
Frequently Asked Questions
Can I still claim FHL tax advantages for 2024/25?
Yes. The FHL regime applies fully for the 2024/25 tax year (ending 5 April 2025). You can claim capital allowances, mortgage interest as a deduction (not just a 20% credit), and the income counts as relevant earnings for pension contributions. From 2025/26 onwards, the FHL regime no longer exists.
What happens to capital allowances I have already claimed?
Transitional rules apply. Writing-down allowances on existing capital allowance pools continue until the pool is exhausted. However, you cannot claim new Annual Investment Allowance (AIA) on replacement furnishings from 2025/26 — you use Replacement of Domestic Items Relief instead.
Can I still get Business Asset Disposal Relief when selling an FHL?
No. From April 2025, FHL properties are treated as investment property, not trading assets. Business Asset Disposal Relief, gift holdover relief, and rollover relief no longer apply. Any disposal is subject to standard CGT rates (18% or 24%) with no BADR.
Does this affect my pension contributions?
Yes. FHL income previously counted as relevant UK earnings for pension contribution purposes. From 2025/26, it is investment income and does not count. This may reduce the amount you can contribute to a pension with tax relief if FHL income was your main source of earnings.
Further Reading
- Mortgage Interest Restriction (Section 24) — how the 20% credit works
- Incorporating a Property Business — when a company structure makes sense
- CGT on Rental Property — calculating the gain on sale
- Airbnb Hosting Tax Guide — short-term letting without FHL status
- Allowable Landlord Expenses — what you can still deduct
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