Furnished Holiday Lettings (FHL) referred to a specific category of short-term rental properties in the UK or European Economic Area (EEA) that qualified for advantageous tax treatment under UK tax rules. These were commercially let, fully furnished holiday accommodations, such as cottages, apartments, or houses, intended for short-term stays by tourists or visitors. The regime was designed to support the holiday letting sector by treating FHL income more like trading income in certain respects, rather than standard rental income. However, as of 6 April 2025 (for Income Tax) and 1 April 2025 (for Corporation Tax), the FHL regime has been abolished, meaning these properties are now taxed under the same rules as other residential or property rentals.
The rules outlined below primarily apply to the 2024-25 tax year (6 April 2024 to 5 April 2025), the last year the regime was in effect. For tax years starting from April 2025 onward, including the current 2025-26 tax year, FHL properties are integrated into a taxpayer’s general UK or overseas property business.
Qualifying Criteria
To qualify as an FHL in the 2024-25 tax year, a property had to meet strict conditions:
- Location: The property must have been in the UK or EEA (including Iceland, Liechtenstein, and Norway). UK and EEA FHLs were treated as separate businesses for tax purposes.
- Furnishing: It needed to be fully furnished with sufficient items (e.g., beds, tables, kitchen equipment) for normal occupation, and tenants must have been entitled to use them.
- Commercial Intent: The letting must have been on a commercial basis with the aim of making a profit. Even if no profit was made (e.g., due to off-season lettings to cover costs), it could still qualify if the intent was commercial.
- Occupancy Thresholds (all three must be met in the tax year):
- Availability Threshold: The property must have been available for commercial holiday letting to the public for at least 210 days (excluding days of personal use by the owner).
- Letting Threshold: It must have been actually let as holiday accommodation for at least 105 days (excluding longer-term lets over 31 continuous days, or lets to friends/family at reduced or zero rates).
- Pattern of Occupation Threshold: The total period of longer-term lets (over 31 continuous days) must not have exceeded 155 days.
- Elections for Flexibility:
- Averaging Election: If you had multiple properties, you could average the letting days across them to meet the 105-day threshold (deadline: 31 January 2027 for 2024-25).
- Period of Grace Election: Allowed up to two consecutive years of grace if you genuinely intended to meet the letting threshold but failed (e.g., due to unforeseen circumstances), provided it qualified in the prior year.
- Apportionment: If the property was only partly used for FHL or had private use, income and expenses were apportioned accordingly.
Properties like caravans or houseboats could qualify if they met the criteria. All UK FHLs were combined into one business, and all EEA FHLs into another, with no offsetting of losses between them.
If a property ceased to qualify (e.g., due to sale, private use, or failing thresholds), the special treatment ended, potentially triggering balancing allowances or charges on capital assets.
Tax Advantages and Rules Under the FHL Regime
The FHL regime provided several benefits not available to standard buy-to-let properties, treating the income more favorably:
- Income Tax Treatment:
- Profits were calculated separately from other property income.
- Full deduction of loan interest and finance costs (no restriction to basic rate, unlike non-FHL residential lets).
- Losses could only be carried forward and offset against future FHL profits in the same business (UK or EEA).
- Capital Allowances: You could claim plant and machinery allowances for items like furniture, fixtures, equipment, and vehicles (e.g., 100% first-year allowances for zero-emission cars or electric charge-points). Balancing charges applied on disposals if proceeds exceeded the tax value.
- Capital Gains Tax (CGT) Reliefs: Treated as a trading business, qualifying for:
- Business Asset Disposal Relief (BADR) – reduced CGT rate to 10%.
- Rollover Relief – defer CGT on gains reinvested in new assets.
- Gift Relief – defer CGT on gifts of business assets.
- Relief for loans to traders.
- Exemptions for disposals by companies with substantial shareholdings.
- Pension Contributions: FHL profits counted as “relevant UK earnings” for calculating maximum pension relief.
- Other Rules:
- Cash basis or traditional accounting could be used (consistent with other property income).
- Property Income Allowance (up to £1,000) was available if total property income exceeded £1,000, but claiming it meant no expense deductions.
- Non-resident landlords reported gross income and claimed back tax deducted under the scheme.
These advantages were intended to encourage investment in holiday accommodations but were seen as distorting the property market.
Reporting in Tax Returns
For the 2024-25 tax year:
- Use the “UK Property” pages (SA105) of the Self Assessment tax return.
- Report FHL income separately (e.g., Box 5 for total income, Boxes 6-12 for expenses like repairs, loan interest, professional fees, and capital allowances).
- Copy profits to the main tax return (e.g., as non-savings income in tax calculation).
- Elections (averaging or period of grace) were made via the return or separately by the deadline.
- If using the tax calculation summary (SA110), FHL fed into non-savings income sections.
Deadlines: Paper returns by 31 October 2025; online by 31 January 2026.
Abolition of the Regime and Current Status
The FHL regime was abolished to create a fairer tax system by removing tax advantages for holiday let owners compared to other landlords. It was announced in the Spring Budget 2024 and took effect from 6 April 2025 for Income Tax (and 1 April 2025 for Corporation Tax).
- Reasons: The regime, introduced in 1984, gave undue benefits in finance costs, capital allowances, CGT reliefs, and pension contributions, potentially distorting the housing market (e.g., favoring short-term holiday lets over long-term rentals).
- Impacts:
- All former FHL properties are now part of your general UK or overseas property business.
- Finance costs (e.g., loan interest) are restricted to basic rate relief for residential properties.
- No access to trader-style CGT reliefs (e.g., no BADR at 10%; standard CGT rates apply: 18%/24% for residential property gains).
- Profits no longer count as earnings for pension relief.
- Simplified reporting: No separate FHL calculations, potentially reducing admin burden.
- Transitional Arrangements:
- Losses: Existing FHL losses can be carried forward and offset against future general property business profits (broader than before).
- Capital Allowances: Continue writing-down allowances on existing pools; new expenditure (from April 2025) qualifies for “replacement of domestic items relief” instead (deduction for replacing furnishings, no initial purchases).
- CGT Reliefs: If a business ceased before abolition and met FHL conditions, reliefs like BADR may still apply to disposals within 3 years post-cessation. Pre-abolition relief claims are not disturbed.
- Anti-Forestalling Measures: From 6 March 2024, rules prevent exploiting the regime via unconditional contracts (e.g., artificial transfers to crystallize gains under old CGT reliefs).
- Post-Abolition Treatment: Income and gains are reported as standard property income. For 2025-26 onward, use the same boxes in SA105 but without FHL separation. Expect higher tax bills for many owners due to lost reliefs.
- Guidance and Further Info: See HMRC’s policy paper for details. Contact HMRC at robert.nott@hmrc.gov.uk or 03000 537413. No formal consultation occurred; impacts were assessed in Budget documents.
If you’re dealing with a property in the 2024-25 tax year, refer to the old rules for your return. For current or future years, consult a tax adviser, as the changes could affect profitability—e.g., higher CGT on sales or restricted interest deductions.