UK FHL Post-Abolition Strategy (2026/27)
FHL tax regime ended April 2025: the four reliefs holiday let landlords lost, the transitional rules, and the options for 2026/27.
What FHL landlords lost from April 2025
| Relief lost | Before repeal | After repeal | Impact |
|---|---|---|---|
| Full deduction of mortgage interest | Finance costs deducted in full from FHL profits | Finance cost restriction applies: no deduction, instead a tax credit at the basic rate (20%) | A higher-rate landlord with £15,000 of interest, whose whole rental profit is taxed at 40%, pays about £3,000 more a year. Companies are not subject to the restriction. |
| Capital allowances on furniture, fixtures and equipment | Plant and machinery allowances, including the Annual Investment Allowance | No allowances on new expenditure: CAA 2001 s.35 excludes plant or machinery for use in a dwelling-house (HMRC confirms a holiday home is one). Replacement of Domestic Items Relief applies instead | Expenditure already in a capital allowance pool by 5 April 2025 (31 March 2025 for companies) keeps getting writing-down allowances until the pool is used up or a small pool claim is made. |
| Capital Gains Tax reliefs for trading assets | Business Asset Disposal Relief, roll-over relief, gift hold-over relief, relief for loans to traders | No longer available on a former FHL, apart from the transitional cases below | From 6 April 2026 BADR is 18%, the same as the basic CGT rate, so the loss falls mainly on higher-rate sellers, who now pay 24%. The loss of roll-over and gift relief can matter more than the rate. |
| Pension relief on FHL profits | FHL profits counted as relevant UK earnings for pension tax relief | Rental profits are not relevant UK earnings | With no other earnings, relief is limited to the £3,600 gross basic amount (FA 2004 s.190). |
| Profit split between spouses | Joint owners who were spouses could split FHL profits as agreed | ITA 2007 s.836 50:50 rule applies to spouses living together | Income follows the actual unequal ownership only if the beneficial interests are unequal and a Form 17 declaration is filed within 60 days. |
The interest example uses the 2026/27 rates for England, Wales and Northern Ireland. Scottish taxpayers have different Income Tax bands, but the finance cost credit is still given at 20%.
Related guides
- UK Landlord LTD Incorporation 2026/27 - the costs of moving property into a company.
- UK Section 24 Mortgage Interest 2026/27 - now applies to former FHL.
- FHL Abolition April 2025 Guide - background.
- UK Landlord Rental Income Tax 2026/27 - standard rental rules now apply.
Frequently asked questions
When did the FHL regime end?
The furnished holiday lettings rules were repealed with effect from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax. Income and gains from a former FHL now form part of the owner's ordinary UK or overseas property business and follow the same rules as any other letting. HMRC confirms the repeal applies in all four nations of the UK and does not change VAT, Council Tax or business rates.
What were the qualifying conditions to be an FHL?
In HMRC's summary, the property had to be furnished, available for short-term letting to the public for at least 210 days in the year and actually let for at least 105 days, and not be in longer-term occupation (lets of more than 31 days) for significant periods. Meeting those tests no longer gives any tax advantage.
What are the options for a former FHL now?
The repeal does not require you to change how you let the property: HMRC confirms the tax rules are the same whether you keep letting to holidaymakers or move to longer lets. The common choices are to carry on and accept the ordinary property rules, change to longer lets for non-tax reasons, sell, or hold the property through a company. Each has different costs, set out in the other answers. There is no single right answer and the figures depend on your income, borrowing and the property.
What transitional rules apply?
Four. (1) Capital allowances: writing-down allowances, balancing allowances and charges continue on expenditure already pooled by 5 April 2025 (31 March 2025 for companies); new expenditure falls under the property business rules. (2) Losses: FHL losses carried forward can be set against future profits of the ordinary UK or overseas property business. (3) BADR: if an FHL business ceased before 6 April 2025 (1 April 2025 for companies), relief can still apply to a disposal within the normal 3 years after cessation. HMRC treats cessation as the date there are no bookings or lettings and no intention to resume, not the date bookings stop being taken. (4) Anti-forestalling: for a contract made on or after 6 March 2024 with a disposal on or after 6 April 2025, roll-over, gift or BADR relief applies only if the claim confirms the conditions in the legislation are met.
Does putting a former FHL into a company avoid the interest restriction?
A company is not subject to the finance cost restriction and pays Corporation Tax (19% to 25% in 2026/27) rather than Income Tax. But a company cannot claim capital allowances on plant or machinery in a dwelling-house either (CAA 2001 s.35 applies to any property business). The transfer is a disposal at market value for CGT; incorporation relief under TCGA 1992 s.162 needs a business transferred as a going concern, which a passive letting may not be. SDLT is charged on at least market value where the buyer is a connected company (FA 2003 s.53), and a company buying a dwelling normally pays the higher rates. Profits taken out as dividends are taxed again. Take advice before transferring.
What is Replacement Domestic Items Relief?
ITTOIA 2005 s.311A gives a deduction for the cost of replacing a domestic item, such as furniture, furnishings, appliances or kitchenware, provided for use in a let dwelling. It covers the cost of a like-for-like replacement, less any amount received for the old item; the cost of the first item and of any improvement element is not deductible. After repeal it is available to former FHLs in the same way as other residential lettings.
How is Capital Gains Tax charged if I sell a former FHL?
Without BADR, gains on residential property from 6 April 2026 are taxed at 18% within the basic-rate band and 24% above it, after the annual exempt amount. BADR, where a transitional rule still allows it, is 18% from 6 April 2026. Whether to sell is a personal decision; the tax is only one input.