The End of Furnished Holiday Lets: What Should Short-Term Let Landlords Do?
As of the 6th of April 2025, the Furnished Holiday Let (FHL) regime, once a cornerstone of tax efficiency for short-term rental landlords, has officially been scrapped. The impact of which is already being felt across the property sector.
For years, FHLs offered significant tax benefits, including full mortgage interest deductions, access to capital allowances, and Capital Gains Tax (CGT) reliefs like Business Asset Disposal Relief (BADR). Now, short-term lets are taxed just like any other residential property, and landlords are facing a very different landscape.
What Does This Mean for Landlords?
The key impacts are:
Mortgage Interest Relief: Now capped at the basic rate of 20%, even for high-rate taxpayers.
Capital Allowances: No longer available for new furnishings or equipment; only replacements can be claimed under standard property rules.
Capital Gains Tax Reliefs: Business reliefs, such as BADR, roll-over relief, and gift relief, no longer apply.
Pension Contributions: Profits from short-term lets no longer count as “relevant earnings” for personal pension relief.
Profit Splitting Rules: Income must now be split according to actual ownership shares, removing previous flexibility for couples.
In short, these changes are likely to lead to higher tax bills for landlords.
What Should Landlords Do Now?
Consider Switching to a Limited CompanyMany landlords operated FHLs in their own names to benefit from tax reliefs. With these gone, holding property through a limited company may now offer better tax efficiency, particularly if you have significant mortgage interest or plan to reinvest profits.
However, transferring property into a company carries CGT and Stamp Duty costs, so professional advice is essential.
Understand the New Tax LandscapeShort-term rental income is now treated like any standard rental income. If you’re letting through platforms like Airbnb, you must now:
Use the cash basis of accounting (unless you opt out)
Apply restrictions on mortgage interest
Declare profits according to the actual ownership split
Reassess Your Profits
Without the FHL tax perks, not every short-term let will remain profitable. When you combine this with rising operating costs and tighter local authority regulations, it’s clear that landlords should reassess whether short-term letting remains the best use of their assets.
Some are already pivoting to long-term tenancies, especially in high-demand areas, to create more predictable income and reduce admin burdens.
Maximise What You Can Still Claim
Although capital allowances are off the table, you can still claim tax relief on replacement costs for domestic items, but only for like-for-like replacements.
Good record-keeping is now even more critical, as HMRC is expected to pay closer attention to short-term let accounts.
VAT Still Applies to Short-Term Lets
Even though the FHL regime has ended, short-term holiday accommodation remains a VATable supply. If your rental income exceeds the £90,000 VAT threshold (as of April 2025), you must still register for and charge VAT.
Final ThoughtsThe abolition of the FHL regime represents a major shift for UK landlords. Although the changes are unwelcome for many, they also present an opportunity to reassess your strategy, future-proof your portfolio, and move towards more sustainable models.
The landlords who adapt quickly, with strong record-keeping and expert tax advice, will be the ones best placed to thrive in this new era.
If we can help you with any of your property needs, contact the team for a confidential conversation using the details below.
Website: Tel: 0808 169 9090 Email: enquiries@Equatas.co.uk
