What changed when the Furnished Holiday Lettings regime ended in April 2025, plus SA105, allowable expenses, the finance-cost restriction and MTD for UK holiday let owners.
If you own a holiday let, April 2025 changed the tax rules under your feet. For years, a property that met the Furnished Holiday Lettings tests was treated almost like a trade rather than a passive rental: full mortgage interest relief, capital allowances on furniture, generous capital gains tax reliefs and earnings that counted towards your pension. That special regime has now been abolished. Your cottage by the coast or your city short-let is taxed the same way as an ordinary buy-to-let, and for most owners that means a higher bill and a more restrictive set of rules.
This guide explains exactly what you lost, how holiday let income is taxed now, the allowable expenses that still work, how the finance-cost restriction bites, and what joint owners and Making Tax Digital mean for you going forward.
The Furnished Holiday Lettings regime ended on 6 April 2025 for individuals (1 April 2025 for companies). There is no longer an FHL box on your Self Assessment return. Holiday let income now sits inside your ordinary UK property business and is reported on the SA105 property pages, alongside any buy-to-let you own. Overseas holiday lets go on SA106.
The headline losses are concrete. You no longer get full finance-cost deductibility, capital allowances on new furniture, the capital gains reliefs (Business Asset Disposal Relief, rollover relief and gift holdover relief), or relevant-earnings status for pension purposes. Profits and losses from former FHLs are now pooled with your other property income, which can be helpful for loss relief but removes the standalone treatment owners relied on.
You pay Income Tax on the profit from your holiday let, which is rental income minus allowable property expenses, combined with any other property profits. For 2025/26 the personal allowance covers the first GBP 12,570, then you pay 20% to GBP 50,270, 40% to GBP 125,140 and 45% above, with the personal allowance tapering away between GBP 100,000 and GBP 125,140 to create an effective 60% band. Property income does not attract Class 4 National Insurance, which is one of the few silver linings of being taxed as an investment business rather than a trade.
Scottish owners pay Scottish Income Tax through six bands (19%, 20%, 21%, 42%, 45% and a 48% top rate) and carry an S-prefixed tax code; Welsh owners have a C-coded tax code at rates currently matching the rest of the UK. If a PAYE job or pension is distorting your code while your rental profit pushes you up the bands, check it with the tax code checker. To model the new ordinary-property treatment of your let, run the figures through the rental income tax calculator.
This is where former FHL owners feel the change most. Under FHL rules you deducted 100% of mortgage interest from rental profit. Now your holiday let falls under the same restriction as buy-to-let.
You can no longer deduct finance costs (mortgage interest, loan arrangement fees, and interest on loans to buy or improve the property) from your rental profit. Instead, HMRC calculates a basic-rate tax reduction equal to 20% of those finance costs and knocks it off your final tax bill.
| Taxpayer | Before April 2025 (FHL) | After April 2025 (ordinary) |
|---|---|---|
| Basic-rate (20%) | Full interest deducted | 20% credit — broadly the same outcome |
| Higher-rate (40%) | Full interest deducted | Only a 20% credit — effective relief halved |
| Additional-rate (45%) | Full interest deducted | Only a 20% credit — biggest loss of all |
There is a further sting: because finance costs are no longer deducted before arriving at taxable profit, your reported rental profit is higher. That inflated profit can drag you over GBP 50,270 into higher-rate tax, over GBP 100,000 into the personal-allowance taper, or affect things like the High Income Child Benefit Charge, even though your real cash position has not improved.
You still deduct genuine running costs incurred wholly and exclusively for the letting business. The list is broad because short-term lets are management-heavy.
| Expense | What qualifies | Notes |
|---|---|---|
| Cleaning and laundry | Changeover cleans, linen hire, laundry service | Often the largest running cost for short lets |
| Letting agency and platform fees | Airbnb, Booking.com, Sykes and managing-agent commission | Deduct the fee, report income gross |
| Utilities and council tax | Electricity, gas, water, broadband, council tax or business rates | Business rates may apply if let enough days |
| Insurance | Specialist holiday let and public liability cover | Standard home insurance will not cover lettings |
| Repairs and maintenance | Decorating, fixing the boiler, garden upkeep, like-for-like repairs | Improvements are capital, not revenue |
| Replacement of domestic items relief | Like-for-like replacement of beds, sofas, white goods, crockery | Replaces old FHL capital allowances on furniture |
| Welcome packs and consumables | Toiletries, tea, coffee, cleaning supplies left for guests | Fully deductible running costs |
| Advertising and listings | Photography, listing fees, your own booking website | Deductible marketing costs |
| Accountancy and admin | Bookkeeping, Self Assessment, business banking | Fully deductible |
| Finance costs | Mortgage interest, arrangement fees | NOT deducted — claimed as a 20% credit instead |
The critical change to internalise is furniture. Under FHL you claimed capital allowances on the initial fit-out and on upgrades. Now the only relief on furnishings is replacement of domestic items relief, which covers swapping a worn-out sofa, bed, washing machine or set of crockery for an equivalent. It does not cover the first time you furnish the property, and it does not cover improvements beyond a like-for-like standard.
If your gross property income (including the holiday let) is GBP 1,000 or less in a tax year, the property allowance makes it tax-free and you do not need to report it. Above GBP 1,000 you must declare it, and each year you choose either to deduct the flat GBP 1,000 allowance instead of expenses, or to deduct your actual allowable expenses if they are higher. For a holiday let with meaningful cleaning, agency and utility costs, actual expenses almost always win, so the GBP 1,000 allowance mainly helps very small or occasional lets.
Many holiday lets are owned by couples. For married couples and civil partners, HMRC splits the income 50:50 by default no matter how the legal title is held, unless you file a Form 17 election supported by a declaration of your actual beneficial shares. Unmarried joint owners are taxed on their real ownership proportions. Since the FHL abolition you can no longer allocate profits flexibly between spouses the way the old regime allowed, so the default 50:50 split (or your declared Form 17 share) now also governs how the 20% finance-cost credit is divided. If one partner is a basic-rate taxpayer and the other is higher-rate, getting the ownership split right has become more important, not less.
Take a higher-rate owner with a single coastal holiday cottage, let through a platform, with GBP 28,000 of annual rental income and a buy-to-let style mortgage.
Rental income: GBP 28,000
Allowable expenses (excluding finance costs):
Rental profit: GBP 28,000 minus GBP 12,800 = GBP 15,200
Because this owner is already a higher-rate taxpayer from other income, the GBP 15,200 profit is taxed at 40% = GBP 6,080.
Mortgage interest: GBP 9,000. Under the old FHL rules this would have been deducted in full, leaving a profit of just GBP 6,200. Now it is not deductible; instead the owner gets a 20% credit: GBP 9,000 at 20% = GBP 1,800 off the tax bill.
Net tax on the let: GBP 6,080 minus GBP 1,800 = GBP 4,280. Under FHL the same property would have produced roughly GBP 2,480 of tax (40% of GBP 6,200), so the abolition costs this owner about GBP 1,800 a year. If the holiday let sits alongside other income, use the multiple-income tax calculator to see how the streams stack and where the higher reported profit pushes you up the bands.
The FHL abolition rarely changes the rent you collect, but it changes the tax you keep. The owners hit hardest are higher-rate borrowers, because the same mortgage interest that was once fully deductible is now only a 20% credit.
Making Tax Digital for Income Tax replaces the annual return with quarterly digital submissions and a year-end finalisation. The thresholds are based on gross income, not profit, and they pool your property and trading income together:
A holiday let with GBP 28,000 of rent plus a modest side trade can easily cross GBP 50,000 of gross income, so do not assume a single property keeps you out. Once mandated, you record each booking and cost digitally as it happens and send HMRC a quarterly summary through MTD-compatible software, then finalise the year. For owners juggling changeovers and platform payouts, continuous digital records are far easier than reconstructing a year of bookings each January. Our guide to MTD for sole traders explains the quarterly rhythm, and the same mechanics apply to landlords.
Still deducting full mortgage interest. The single most common error post-April 2025. Finance costs are now a 20% credit, not a deduction, and reporting them the old way understates your profit and your tax.
Assuming furniture is still a capital allowance. New furnishings are not deductible; only like-for-like replacements qualify under replacement of domestic items relief.
Forgetting the higher reported profit affects other things. Because finance costs are added back, inflated profit can trigger the personal-allowance taper or the Child Benefit charge even when cash flow is flat.
Ignoring the joint-ownership default. Married couples are taxed 50:50 unless a Form 17 election says otherwise, so the wrong split can leave a higher-rate spouse overpaying.
Treating the let like a trade for CGT. The reliefs that made FHL disposals attractive are gone; a future sale is now an ordinary residential property gain. If you also rent out longer-term, our rental income guide covers the shared SA105 rules.
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