Furnished Holiday Lettings Tax Changes 2026: What Landlords Must Know

The furnished holiday lettings tax changes 2026 follow the abolition of the FHL regime from April 2025. Former holiday-let owners lose FHL capital allowances, full mortgage-interest deduction and special Capital Gains Tax reliefs, and now fall under ordinary property-income rules — including the Section 24 finance-cost restriction that gives only a 20% basic-rate credit.

Key takeaways

• The FHL regime is gone. From April 2025, furnished holiday lettings are taxed like any other residential rental — the separate FHL rules no longer exist.
• Mortgage interest relief is restricted. Full finance-cost deduction is replaced by the Section 24 rules: a 20% basic-rate tax credit instead of a deduction from profit.
• Capital allowances stop. New spending on furniture and equipment no longer qualifies for plant and machinery capital allowances; replacement-of-domestic-items relief applies instead.
• CGT reliefs are withdrawn. The trading-style Capital Gains Tax reliefs that holiday lets enjoyed — such as Business Asset Disposal Relief and rollover relief — generally no longer apply.
• Model your new position. Test the impact on your own numbers with our UK rental income calculator before you file.

What changed: the abolition of the furnished holiday lettings regime

For decades, a property that met the furnished holiday letting conditions was taxed almost like a trade rather than an ordinary rental. That special status has ended: the furnished holiday lettings tax changes 2026 reflect the government's decision to abolish the FHL regime from April 2025. The change took effect from 6 April 2025 for individuals (income tax and Capital Gains Tax) and 1 April 2025 for companies within the charge to Corporation Tax.

To qualify as an FHL, a property historically had to be available to let for at least 210 days a year and actually let commercially for at least 105 days. Meeting those occupancy conditions unlocked a package of tax advantages that ordinary landlords never received. With the regime abolished, those conditions no longer matter — a cottage in Cornwall or an apartment in Edinburgh let to holidaymakers is now taxed under the same property-income rules as a standard buy-to-let. HMRC sets out the detail in its policy paper on the abolition of the furnished holiday lettings tax regime.

Which FHL tax advantages have been lost?

The old regime gave four headline benefits that have now disappeared for former holiday-let owners:

• Full mortgage and finance-cost relief — FHL owners could deduct 100% of mortgage interest from profit, unlike other residential landlords.
• Capital allowances on furniture, fixtures and equipment inside the property.
• Beneficial Capital Gains Tax reliefs on sale, because the letting was treated as a business.
• Pension-relevant earnings — FHL profits counted as earnings for tax-relievable pension contributions.

Each of these is now replaced by the ordinary residential-property treatment. Below we look at the three that hit landlords hardest.

How does the Section 24 finance-cost restriction now apply?

This is the change most former FHL landlords will feel first. Ordinary residential landlords have been subject to the Section 24 finance-cost restriction since it fully phased in during 2020/21, but holiday lets were exempt — they could deduct mortgage interest in full. That exemption has gone.

From April 2025, finance costs on a former holiday let are no longer deducted from rental profit. Instead you receive a basic-rate tax reduction worth 20% of the lower of your finance costs, your property profits, or your adjusted total income. For a higher-rate (40%) or additional-rate (45%) taxpayer, that is a real cost: relief that used to save 40p in the pound now saves only 20p. HMRC explains the mechanics, with worked case studies, in its guidance on changes to tax relief for residential landlords.

Because the interest is added back before the credit is applied, your taxable income figure also rises, which can tip you into a higher band. For 2026/27, the England and Northern Ireland thresholds are:

• Personal allowance: £12,570 (no tax).
• Basic rate (20%): taxable income up to £37,700 — total income to £50,270.
• Higher rate (40%): income from £50,271 to £125,140.
• Additional rate (45%): income above £125,140.

What happened to FHL capital allowances?

Under the FHL regime, you could claim plant and machinery capital allowances on the cost of furnishing and equipping the property — beds, sofas, white goods, kitchens and similar items. That reduced taxable profit, sometimes substantially in the year of purchase.

From April 2025, new expenditure of this kind no longer qualifies for capital allowances. Instead, former holiday lets use replacement of domestic items relief, the same relief available to ordinary landlords. This gives relief only when you replace an existing item (not on the initial purchase), and only for the cost of a like-for-like replacement. Allowances validly claimed before the change are generally not clawed back, but the ongoing benefit is far narrower. General guidance on allowable costs sits within GOV.UK's information on renting out a property.

Do the old FHL Capital Gains Tax reliefs still apply?

Selling an FHL used to be treated much like selling a business asset, which opened the door to reliefs such as Business Asset Disposal Relief (a 10% CGT rate on qualifying gains), rollover relief and gift holdover relief. Those trading-style reliefs are generally no longer available on disposals of former furnished holiday lets.

There were transitional provisions around the withdrawal of some of these reliefs, and the Capital Gains Tax position on a disposal can be genuinely complex — it depends on when the property qualified, when it is sold, and your wider circumstances. If you are planning to sell a former holiday let, this is an area to confirm with a qualified adviser before you commit, rather than assume the old treatment still applies.

Worked example: a former holiday-let owner after the changes

Take a landlord with a £45,000 salary and a former holiday cottage:

• Holiday-let income: £20,000
• Running costs (cleaning, insurance, agent): £4,000
• Mortgage interest: £9,000

Under the old FHL rules, taxable profit was £20,000 − £4,000 − £9,000 = £7,000, added to salary for a total of £52,000, with the interest relieved in full.

Under the new rules, the £9,000 interest is stripped out of the profit calculation. Taxable property profit becomes £16,000, lifting total income to £61,000 — over the £50,270 higher-rate threshold. The landlord gets a 20% credit on the interest (£1,800), but part of the property income is now taxed at 40%. The cash profit is unchanged, yet the tax bill rises. You can stress-test your own figures with our calculators or the dedicated rental income tool.

What should former FHL landlords do now?

The furnished holiday lettings tax changes 2026 do not demand a single action, but they do reward planning. Practical steps that often help:

• Recalculate your real return under the new rules, factoring in the Section 24 restriction and the loss of capital allowances.
• Separate finance costs in your records, because they now go in a dedicated Self Assessment box for the 20% credit rather than in with other expenses.
• Review ownership — spreading income to a lower-earning spouse, or considering a company structure, can help some landlords, though incorporation carries Stamp Duty Land Tax and CGT costs and is rarely a simple win.
• Take advice before selling, given the withdrawn CGT reliefs.

Every Self Assessment return prepared by Next Tax Source is reviewed and signed off by a licensed chartered accountant before anything is filed. Our guide to Self Assessment for landlords walks through the return, and our companion piece on incorporating a property portfolio weighs up the company route now that the FHL advantages have gone. For income tax band information, see GOV.UK. When you want tailored advice, you can book a consultation.

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Reviewed by a Chartered Accountant. Figures reflect England and Northern Ireland income tax rates for the 2026/27 tax year; Scotland sets its own income tax bands. This article is general information, not personal tax advice — confirm your position with a qualified professional before acting.

Last updated: 5 August 2026

Frequently asked questions

When were the furnished holiday lettings tax rules abolished?

The FHL regime was abolished from April 2025 — 6 April 2025 for individuals (income tax and Capital Gains Tax) and 1 April 2025 for companies within the charge to Corporation Tax. From those dates, holiday lets are taxed under the ordinary property-income rules, and the special FHL advantages no longer apply.

Can I still claim mortgage interest on a former holiday let?

Not as a deduction from profit. Since the abolition, finance costs on a former holiday let fall under the Section 24 restriction, the same as other residential landlords. You receive a basic-rate tax reduction worth 20% of the lower of your finance costs, property profits, or adjusted total income — rather than deducting the interest in full.

Do I lose capital allowances on my holiday let?

New expenditure on furniture, fixtures and equipment no longer qualifies for plant and machinery capital allowances. Former holiday lets now use replacement of domestic items relief, which gives relief only when you replace an existing item on a like-for-like basis, not on the initial purchase. Allowances validly claimed before the change are generally not clawed back.

Can I still get Business Asset Disposal Relief when I sell my holiday let?

Generally no. The trading-style Capital Gains Tax reliefs that FHLs enjoyed — such as Business Asset Disposal Relief, rollover relief and gift holdover relief — are no longer available on disposals of former holiday lets. There were transitional provisions around the withdrawal, and the CGT position on a sale can be complex, so confirm your specific position with a qualified adviser before selling.

Are furnished holiday let profits still relevant earnings for pension contributions?

No. Under the old regime, FHL profits counted as relevant UK earnings for tax-relievable pension contributions. Since the abolition, profits from a former holiday let are ordinary property income and no longer count as relevant earnings for that purpose.

Does the FHL abolition affect properties in Scotland and Wales?

Yes. The FHL rules were a UK-wide income tax and Capital Gains Tax regime, so the abolition applies to holiday lets across the UK. However, Scotland sets its own income tax bands and Wales has its own land transaction tax, so the rate you pay on the resulting profit can differ from England and Northern Ireland.