Furnished Holiday Lettings Tax Abolished: What UK Property Investors Need to Know in 2026

For years, running a holiday let was one of the most tax-efficient ways to own UK property. A furnished holiday let (FHL) was treated more like a trading business than a rental, unlocking fuller mortgage relief, capital allowances on furniture, and generous capital gains reliefs that ordinary landlords could only envy. That era is over. From April 2025 the special FHL tax regime was scrapped, and 2026 is the first full tax year in which holiday-let owners feel the consequences in their returns. If you own a cottage on the coast, a city apartment on a nightly booking platform, or a lodge you let out through the peak season, the numbers have changed — and this guide explains exactly how.

What actually changed — and when

The abolition was announced in the Spring Budget 2024 and written into Finance Act 2025. The change was not a gradual taper: it was a hard switch-off on a fixed date, moving every qualifying property into the ordinary property-business rules overnight.

From 6 April 2025 (1 April 2025 for companies), the furnished holiday lettings tax regime was abolished, meaning short-term holiday lets are now taxed under the same rules as other residential property businesses. — HM Revenue & Customs, abolition of the furnished holiday lettings tax regime policy paper, 2024

In practice, that single sentence removes four distinct advantages holiday-let owners relied on. Below is the before-and-after picture, then a closer look at each change and what you should do about it.

FHL tax treatment: before vs after abolition

1. Mortgage interest relief is now restricted

This is the change that hurts leveraged owners most. Under the FHL rules, all finance costs — mortgage interest, arrangement fees, and the interest on loans to furnish the property — came straight off your rental profit before tax. Now holiday lets fall under the same Section 24 restriction that reshaped the buy-to-let market years ago.

Finance-cost relief for holiday-let landlords is now restricted to a basic-rate 20% income-tax credit, the same treatment long-term landlords have faced since the phasing out of full mortgage-interest deduction. — HMRC guidance on property income and finance costs, 2025

For a basic-rate taxpayer the impact is modest, but a higher-rate taxpayer who was effectively getting 40% relief on interest now gets only 20% — and, because interest is added back to profit before the credit is applied, some owners are pushed into a higher tax band or lose their personal allowance. If you bought your holiday let with a large mortgage, model your 2025/26 tax bill now rather than at filing time. Our landlord tax guide walks through how the Section 24 credit is calculated.

2. Capital allowances give way to replacement relief

FHLs could claim capital allowances on the cost of furnishing and equipping the property — beds, sofas, kitchens, white goods — often generating a sizeable deduction in the early years. That is gone. Holiday lets now use replacement of domestic items relief, the same mechanism as standard rentals: you can deduct the cost of replacing a worn-out item, but not the cost of kitting the property out in the first place.

There are transitional rules that let you continue writing down allowances already in a capital-allowances pool, but no new pool can be created for a holiday let after the changeover. If you were planning a refurbishment, the timing and tax treatment now need fresh thought — speak to your accountant before you spend.

3. Capital gains tax reliefs have been withdrawn

The most valuable FHL perk was on exit. Because holiday lets were treated as a trade, a sale could qualify for Business Asset Disposal Relief — a 10% capital gains tax rate on qualifying gains — as well as rollover relief (deferring gains into a replacement asset) and gift holdover relief (passing the property to family without an immediate CGT charge). Those reliefs have generally been withdrawn for holiday lets.

From April 2025, a gain on selling a former holiday let is taxed at the standard residential rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. On a large gain, losing BADR can more than double the tax bill. Anti-forestalling rules were introduced to stop owners locking in the old reliefs through contrived arrangements before the deadline, so retrospective planning is not an option. If a sale is on the horizon, read our analysis of the wider capital gains tax changes and get advice on timing.

4. Pension and profit-splitting advantages end

Two quieter benefits also disappear. FHL profits counted as "relevant UK earnings", which meant they could support tax-relievable pension contributions — useful for owners with little other earned income. That no longer applies. And couples who jointly own a holiday let can no longer split profits freely; income must now follow the legal ownership share, in line with normal property rules.

Who is affected, and what to do now

• Highly geared owners: recalculate your tax on 2025/26 profits with only the 20% finance credit — this is where cash flow bites hardest.
• Owners planning to sell: get a CGT projection at standard rates before listing; the loss of BADR changes the maths on whether to sell, gift or hold.
• Refurbishing landlords: confirm what still qualifies as replacement relief versus non-deductible capital spend before committing.
• Company owners: the corporation-tax version of the regime ended on 1 April 2025 — review whether an SPV structure still fits your goals.
• New entrants: assess serviced accommodation on operating fundamentals, not the vanished tax edge.

Is a holiday let still worth it in 2026?

Removing the tax advantage does not make holiday lets uninvestable — it just means the strategy has to stand on its operating economics. A well-located short-let can still generate a materially higher gross yield than a standard tenancy, but it carries higher running costs, more voids, active management and, in many areas, tighter local licensing. The tax tailwind that used to paper over a mediocre location has gone.

The honest answer for most owners is to run both models side by side. Compare the net, after-tax return of your property as serviced accommodation against a standard buy-to-let, and let the numbers decide. Our serviced accommodation guide covers the operating side in depth, and you can stress-test either scenario with the rental yield calculator.

Key takeaways

• The FHL regime ended in April 2025 — holiday lets are now taxed like any other residential property business.
• Mortgage interest relief is capped at a 20% basic-rate credit under Section 24, hitting higher-rate owners hardest.
• Capital allowances are gone, replaced by narrower replacement of domestic items relief.
• CGT reliefs have been withdrawn — gains are now taxed at 18% / 24%, not the old 10% BADR rate.
• The decision to hold or switch now rests on operating returns, not tax status — model both and take professional advice.

The FHL abolition is one of the biggest quiet shifts in UK property taxation this decade, and its full weight lands in the 2025/26 tax year. If you own a holiday let, treat 2026 as the year to reappraise it with fresh eyes — recalculate the tax, compare the alternatives, and make a deliberate choice rather than drifting on assumptions that no longer hold. Run your figures with our property calculators and browse the strategies library to see how the numbers stack up across models.