April 2025 Tax Furnished Holiday Let (FHL) Changes: How Do Tax Changes Affect Your Property Letting Business?

For many property owners, the Furnished Holiday Lettings (FHL) tax regime has long provided valuable financial benefits, rewarding those who invest in short-term holiday lets or Airbnb-style properties. However, significant changes are on the horizon. From April 2025, the UK government will abolish the FHL tax regime, bringing these properties in line with the standard property business tax rules.

If you own or manage a furnished holiday let, it’s essential to understand how these changes will affect your business and what steps you can take to adapt. In this article, we’ll explore the key changes, their implications, and practical strategies to improve your tax efficiency under the new rules.

What is an FHL?

An FHL is defined as a commercially let, fully furnished property located in the UK or EEA, intended for profit-making through self-catering accommodation.

The Essential Occupancy Criteria Key to FHL status is meeting specific occupancy conditions: The property should be available for at least 210 days as furnished holiday accommodation annually and rented out to the public for a minimum of 105 days. Additionally, no single tenant should occupy the property for more than 31 consecutive days within a seven-month period. 

What’s Changing?

From April 2025, furnished holiday lets will no longer enjoy their current tax advantages. The existing FHL tax regime, which distinguishes short-term lets from standard rental properties, will be abolished. Instead, these properties will be subject to the same tax rules as traditional buy-to-let properties.

Key benefits being removed include:

• Finance Costs Deduction: Currently, FHL owners can offset 100% of mortgage interest costs against rental income. Under the new rules, this will be restricted to a 20% tax credit, as per standard property business taxation guidelines.
• Capital Allowances: The ability to claim capital allowances for furniture, equipment, and fixtures will no longer apply.
• Business Asset Disposal Relief: Previously available for FHL properties when sold, BADR relief will no longer be accessible, increasing Capital Gains Tax (CGT) liabilities.
• Tax Relief on Pension Contributions: The pre April-2025 legislation meant that revenue was counted as Net Relevant Earnings (NRE), enabling you to make pension contributions with tax benefits, however this benefit is being removed.
  

Why Are These Changes Being Made?

The government aims to create a level playing field across the property rental market as well as raising revenue by closing certain tax loopholes. 

By removing the special tax treatment for short-term holiday lets, they hope to align tax rules for landlords and improve fairness in the sector.

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How Will These Tax Changes Affect FHL Property Owners?

For property owners, these changes could mean higher tax liabilities and adjustments to financial planning. Here’s what you need to know:

1. Impact on Taxable Income

Under the new rules, FHL properties will be taxed like other property letting businesses. This means:

• Mortgage interest relief will be limited to a 20% tax credit, potentially increasing your overall tax bill.
• Costs related to furnishing or upgrading your property will no longer qualify for capital allowances.

These changes may result in higher taxable profits, particularly for property owners with significant finance costs.

2. Reduced Incentives to Sell

The removal of Business Asset Disposal Relief means higher CGT rates when selling properties (likely to be 24% of the property value if it is not your main residence). This could discourage some owners from exiting the market or make selling less financially attractive.

3. Administrative Adjustments

Transitioning to the standard property letting tax regime will require adjustments in record-keeping and tax reporting. Property owners will need to familiarise themselves with the new rules to avoid compliance issues.

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Strategies to Improve Tax Efficiency Under the New Rules

Although the end of the FHL tax regime removes some significant advantages, there are still opportunities to optimise your property business’s tax position. Here are our top tax efficiency tips for holiday let owners following these changes:

1. Maximise Deductible Expenses

Whilst furnishing and upgrading costs will no longer be considered an expense, many expenses remain deductible under the standard tax rules, including:

• Maintenance and repairs (e.g., fixing a leaking roof or repainting interiors).
• Utility costs, cleaning services, and property management fees.
• Insurance premiums for landlord or short-term let coverage.

Proactively tracking these expenses and maintaining thorough records will help ensure you claim all allowable deductions.

2. Consider Incorporation

Operating your property business as a limited company could provide tax advantages, including:

• Full mortgage interest deduction as a business expense.
• Corporation tax rates (currently lower than higher-rate personal income tax).

However, incorporation comes with its own costs and complexities, such as higher administrative requirements and potential additional 5% Stamp Duty Land Tax (SDLT) on property transfers.

3. Plan for Capital Gains Tax (CGT)

If you’re considering selling your property, careful planning can reduce your CGT liability. Strategies include:

• Utilising your annual CGT allowance (£6,000 for the 2024/25 tax year, reducing further in future years).
• Timing sales across tax years to spread gains and take advantage of allowances.

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Unsure about Tax Changes and Implications for your Holiday Let or Airbnb? We Can Help!

The April 2025 tax changes for furnished holiday lets may feel like a significant shift, but with the right approach, your property business can remain profitable and compliant. Whilst the loss of FHL-specific benefits will impact many owners, adapting to the new rules doesn’t mean your property letting business will become unprofitable overnight.

If you need guidance navigating the new landscape, expert accountants such as Linggard & Thomas can help. We have many clients navigating these FHL tax changes, meaning we understand both the legislative changes and potential tax efficiency opportunities for these types of businesses.

Get in touch today to see how we can empower your business through our accountancy services.