Big Tax Changes Ahead for Furnished Holiday Lettings – What You Need to Know

If you own a furnished holiday let, there are some important tax changes on the horizon that could significantly affect your future returns. Announced in the Spring Budget 2024, the government confirmed that the Furnished Holiday Letting (FHL) regime will be abolished from April 2025—bringing an end to a number of longstanding tax advantages.

We’re already helping many of our clients plan ahead. Here’s what you need to know and what you should consider doing now.

What’s Changing?

From 6 April 2025 (or 1 April 2025 for limited companies), FHLs will no longer receive special treatment for Income Tax, Capital Gains Tax (CGT), or Corporation Tax. Instead, they’ll be taxed under the same rules as standard rental properties.

This means a number of favourable reliefs will disappear overnight.

Key Tax Benefits Being Scrapped

• Mortgage Interest Relief

For properties held in personal names, currently, you can deduct mortgage interest in full against your holiday letting income. From April 2025, this will be restricted to the basic rate 20% tax credit, similar to other residential landlords. For higher or additional rate taxpayers, that’s a notable reduction in tax relief.

• Business Asset Disposal Relief (BADR)

At present, selling a qualifying FHL can attract the 10% CGT rate under BADR on the first £1m of lifetime gains. This will no longer apply from 6 April 2025. The standard CGT rate for residential property (now reduced to 24%) will apply instead.

There’ll also be no option to roll over gains into new business assets.

• Capital Allowances

You’ll no longer be able to claim capital allowances on furniture, fixtures, or improvements. Going forward, only the replacement of domestic items will be deductible.

Existing capital allowance pools can still be written down over time, but no new claims can be made after the regime ends.

• Pension Contribution Eligibility

Currently, profits from an FHL count as ‘relevant earnings’ for pension contribution purposes. From April 2025, they won’t which could limit how much you can contribute to your pension and still receive tax relief.

Joint Ownership: Changes to Profit Splits

Under current FHL rules, married couples can split income in the most tax-efficient way, regardless of the underlying ownership structure.

From 6 April 2025, this flexibility will disappear. Profits will be split 50:50 by default, unless:

• You own the property in unequal shares, and
• You submit Form 17 to HMRC within 60 days of signing, along with evidence (such as a Declaration of Trust) that reflects the ownership split.
  

⚠️ Important: The form must be signed after 5 April 2025 and received by 6 May 2025. HMRC won’t accept backdated forms.

Anti-Forestalling Rules

If you’re planning to sell your FHL or transfer it to a family member, be aware of new anti-avoidance rules:

• Contracts exchanged after 6 March 2024, but completing after 5 April 2025, may not benefit from BADR, rollover or holdover reliefs especially where the transaction is between connected parties.
  

What Should You Do Now?

Every landlord’s situation is different, but here are some practical steps to consider:

• Review Whether Your Property Still Qualifies as an FHL
  To qualify, the property must be:
• Available to let at least 210 days per year, and
  
• Actually let for at least 105 of those days.

• Consider Capital Improvements Before April 2025
  If you were planning to upgrade your property, making those investments now could allow you to benefit from capital allowances before the door closes.

• Plan Your Exit Carefully
  If you’re thinking about selling or gifting the property, it may be more tax-efficient to do so before the April 2025 deadline—especially if you want to make use of BADR or rollover relief.

• Get Ownership Structure Advice
  Speak to us about updating your ownership share or setting up a Declaration of Trust if you want to manage income split going forward. We’ll also handle the timing and submission of Form 17 to HMRC.

The FHL tax changes are among the most significant reforms to property taxation in years. While there’s still time to act, the window is closing fast. Early planning could save you a considerable amount of tax—and avoid unintended consequences down the line.

If you’d like tailored advice on how these changes affect you and what action you should take, we’re here to help.

Book a review with our team today and let’s make sure you’re in the best position before the April 2025 deadline.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG