Furnished Holiday Let Tax Changes 2025

Furnished Holiday Let Tax Changes 2025: What Property Owners Need to Know

From April 2025, the UK government is abolishing the Furnished Holiday Let (FHL) tax regime, aligning these properties with standard residential rental rules. This change will impact property owners in several ways, affecting capital allowances, mortgage interest relief, capital gains tax (CGT) reliefs, and income allocation for joint owners.

If you own an FHL, it’s crucial to understand these changes and plan ahead. In this blog, we break down what’s changing and how you can prepare before April 2025.

What’s Changing for Furnished Holiday Lets?

From 6 April 2025, properties that currently qualify as FHLs will no longer benefit from special tax treatment. Instead, they will be taxed under the same rules as standard Buy-to-Let (BTL) properties.

Key changes include:

1. Loss of Capital Allowances

At present, FHL owners can claim capital allowances on items such as furniture, fixtures, and equipment, allowing them to deduct the cost from taxable rental income.

From April 2025, these allowances will no longer be available, meaning that any costs incurred on furnishings or equipment will not be immediately tax-deductible. Instead, only capital improvements will be deductible when the property is sold.

2. Mortgage Interest Relief Restrictions

Currently, FHL owners can fully deduct mortgage interest when calculating their taxable profits. However, from April 2025, mortgage interest relief will be restricted to a basic rate tax credit (20%), in line with standard rental properties.

For higher-rate (40%) and additional-rate (45%) taxpayers, this change will increase tax liabilities, as mortgage interest will no longer be fully offset against rental income.

3. Removal of Capital Gains Tax (CGT) Reliefs

FHL owners currently benefit from several CGT reliefs, which reduce tax when selling or transferring a property. These reliefs will be abolished from April 2025, including:

Business Asset Disposal Relief – Currently, this allows FHL owners to pay CGT at 10% on the sale of a property. From April 2025, the standard residential property CGT rates of 18% (basic rate) or 28% (higher rate) will apply.
Roll-Over Relief – Allowing capital gains to be deferred when reinvesting proceeds in another property.
Gift Hold-Over Relief – Allowing CGT to be deferred when gifting a property.

4. Loss Relief Changes

Currently, losses from an FHL business can be offset against other income, potentially reducing an individual’s overall tax bill. However, from April 2025, FHL losses will only be available to offset future rental profits, rather than other sources of income.

5. Changes to Income Allocation for Joint Owners

Under current FHL rules, joint owners can allocate rental income in any proportion they choose, allowing flexibility in tax planning.

From April 2025, Buy-to-Let rules will apply, meaning:

Rental income will automatically be split 50/50 between joint owners, unless an alternative beneficial ownership percentage is in place.
To allocate income differently, Form 17 must be submitted to HMRC, along with supporting evidence of the ownership structure.

If you currently take advantage of flexible income allocation, now is the time to review your ownership structure and decide if changes are necessary.

How Will These Changes Affect You?

These tax changes will increase costs for many FHL owners by reducing deductible expenses and limiting tax relief on mortgage interest. If you own an FHL, you should consider:

✔ The impact on your taxable income – Higher tax liabilities may reduce overall profitability.
✔ Your property financing arrangements – Mortgage interest relief restrictions could significantly impact landlords with high loan-to-value ratios.
✔ Your plans for ownership or sale – Selling or restructuring ownership before April 2025 may help mitigate tax exposure.
✔ How you allocate rental income – Joint owners may need to review their ownership structure to maintain an optimal tax position.

What Can You Do Before April 2025?

To minimise the impact of these changes, consider:

1. Reviewing Your Property’s Ownership Structure

If you own an FHL jointly, check whether the current income split is optimal for tax purposes. If necessary, adjust the beneficial ownership structure and submit Form 17 to HMRC before the rules change.

2. Assessing Your Mortgage Position

With mortgage interest relief set to be restricted, review your borrowing arrangements and consider refinancing options that may be more tax-efficient.

3. Timing Property Sales or Transfers

If you were considering selling or gifting your FHL, doing so before April 2025 may allow you to take advantage of the current CGT reliefs before they are removed.

4. Seeking Professional Tax Advice

With these major changes approaching, speaking to a qualified tax adviser can help you make informed decisions on ownership, tax efficiency, and long-term property planning.

How We Can Help

At Pomroy Associates, we specialise in property tax advice and can help you navigate these changes to protect your financial interests. If you own an FHL, now is the time to review your strategy and take action before the new rules come into effect.

The abolition of the FHL tax regime is a significant change, but with careful planning, you can minimise its impact and make informed decisions about your property portfolio. Get in touch today for tailored advice.