Holiday let tax after the end of the FHL regime: where owners stand in 2026

For some four decades, UK holiday lets that met a set of occupancy tests enjoyed tax treatment closer to a trading business than to ordinary letting. That era closed in April 2025. Eighteen months on, with the first full tax returns under the new rules filed and another rate change announced for 2027, this is where owners stand in September 2026. It is a general overview, not personal advice: the right answer for you depends on your income, your financing and your plans for the property.

What ended, and when

The furnished holiday lettings (FHL) regime was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax. Since then, income from short lets has been treated as part of the owner's ordinary property business, alongside any long-term rentals. The abolition applies across the whole UK, including Scotland, even though Scottish taxpayers pay Scottish income tax rates.

Mortgage interest: from deduction to tax credit

This is the change most owners feel first. Under the FHL rules, finance costs were deducted in full from rental profits, so a higher-rate taxpayer effectively obtained relief at their marginal rate. Now, as for residential landlords generally, individuals receive relief on mortgage interest and other finance costs only as a tax credit at the basic rate. For a heavily financed property owned by a higher or additional-rate taxpayer, the tax bill can rise sharply even though nothing about the letting has changed. From April 2027 the credit is due to be given at the new property basic rate of 22%, as part of the wider rate change described below.

Furniture and equipment

FHL owners could claim capital allowances on furniture, fittings and equipment. New claims are no longer possible. Existing capital allowance pools at the point of abolition continue, so writing-down allowances on the remaining balance can still be claimed in later years. For new purchases, the relief available is the one ordinary landlords use: a deduction for the cost of replacing domestic items such as beds, sofas and appliances, but not for furnishing a property for the first time.

Capital gains: the reliefs that disappeared

• Business asset disposal relief: no longer available on disposals of former FHL properties under the new rules; gains are taxed at the residential property rates.
• Rollover relief: gone, so selling one holiday let to buy another no longer defers the gain.
• Gift holdover relief: gone for these properties, which changes the arithmetic of passing a holiday let to the next generation during your lifetime.

An anti-forestalling rule prevents owners from locking in the old reliefs through contracts exchanged from 6 March 2024 but completed after abolition. Where a former FHL business ceased before April 2025, transitional rules may still matter; this is a point for an adviser, with dates in hand.

Joint owners and pensions

Two quieter consequences catch people out. First, spouses and civil partners could previously split FHL profits in whatever proportions suited them. Now the general rule applies: profits follow the beneficial ownership, and an unequal split has to be backed by the ownership shares and notified to HMRC on Form 17. Second, FHL profits counted as relevant earnings for pension contributions. They no longer do, so an owner whose main income was holiday letting may find their tax-relieved pension contributions limited.

Losses carried forward

Losses made in a former FHL business and carried forward were not wiped out. They can be set against future profits of the owner's wider UK property business, which is a modest compensation where a holiday let made a loss in its early years.

The next change: property income rates from April 2027

Following the November 2025 Budget, the government announced separate income tax rates for property income: 22% at basic rate, 42% at higher rate and 47% at additional rate, from April 2027, for taxpayers in England, Wales and Northern Ireland. Scotland sets its own income tax rates and is not covered by this change. For short-let owners, who now fall squarely within property income, it is a further two-point rise on profits in every band.

What has not changed

Several things are independent of the FHL regime and still need attention:

• VAT: short-stay holiday accommodation is standard-rated. If your taxable turnover from all your business activities exceeds the registration threshold, currently £90,000 over twelve months, you must register. That threshold rose from £85,000 to £90,000 on 1 April 2024 (S.I. 2024/307) and has not moved since.
• Business rates or council tax: the local tax classification depends on letting thresholds that differ by nation (140 and 70 nights in England and Scotland, 252 and 182 days in Wales), not on income tax rules.
• Companies: properties held by a company pay corporation tax on profits; the choice between personal and company ownership involves transfer costs and extraction taxes, and deserves a full model rather than a rule of thumb.

A practical checklist

• Recalculate your after-tax return with finance costs as a basic-rate credit, then again at 2027 rates.
• Keep an inventory of furniture and appliances to support replacement claims.
• Check how profits are split between joint owners and whether a Form 17 is needed.
• Review pension contributions if holiday letting was your main earnings source.
• Track turnover against the VAT threshold if you own several properties.

None of this makes short letting unviable, but it rewards owners who run their property carefully and price it realistically. If you are weighing up what a holiday let can still deliver, tell us about it; we study every request and tell you honestly whether and how we can help.