UK FHL Post-Abolition Strategy (2026/27)
UK Furnished Holiday Let (FHL) post-abolition strategy 2026/27: April 2025 FHL regime ended, what landlords lose (full interest deduction + capital allowances + BADR + pension), transition planning (incorporate / sell / convert to long-let / hybrid Airbnb model), Capital Allowances grandfathering, BADR claim window if sold pre-April 2025.
What FHL landlords lost from April 2025
| Relief lost | Pre-April 2025 | Post-April 2025 | Impact |
|---|---|---|---|
| Full mortgage interest deduction | 100% deductible against rental profits | Section 24 restriction - 20% basic-rate credit only | Higher-rate landlord with £15k interest: was £15k deduction; now £3k credit. Effective £4,800 extra tax for £40 marginal rate |
| Capital Allowances on furniture / equipment | AIA + WDA on plant + machinery in FHL property | NOT available - personal residential property is excluded from capital allowances | Cannot deduct cost of new sofas, kitchens, beds. Furniture replacement only via Replacement Domestic Items Relief (modest) |
| Business Asset Disposal Relief (BADR) on sale (18% rate post-April 2026) | FHL was "qualifying business" for BADR | BADR not available for residential lettings (since April 2020); FHL was exception, now gone | 18%/24% standard Capital Gains Tax (CGT) vs 18% BADR = no longer concession; though BADR rate equalised April 2026 anyway |
| Pension contributions on FHL profits | FHL profits = "relevant earnings" for pension contribution limit | Pure rental income is NOT relevant earnings - £3,600 gross is the cap unless other earnings exist | High-FHL-income retirees lose ability to make large pension contributions |
| Income split with spouse | FHL allowed flexible profit split between spouses regardless of ownership | Standard tenancy-in-common ownership split required; Form 17 election needed | Spouse with unused PA + basic-rate band may lose tax efficiency |
Related guides
- UK Landlord LTD Incorporation 2026/27 - escaping Section 24.
- 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?
April 2025. Abolished in March 2024 Budget by then-Conservative government; effective from 6 April 2025. Labour government (elected July 2024) retained the abolition. Affects ~120,000 UK furnished holiday letting properties. The "qualifying conditions" (90+ days actually let, 105+ days available, properly furnished + commercially marketed) no longer trigger FHL tax benefits.
What were the qualifying conditions to be FHL pre-abolition?
Three tests for each property each tax year: (1) Pattern of occupation: NOT let for periods over 31 days for more than 155 days total in the year. (2) Availability: AVAILABLE for commercial letting 210+ days per year. (3) Lettings: ACTUALLY LET 105+ days per year (excluding longer lets to same tenant of 31+ days). Furnished AND commercially marketed. Most Airbnb-style properties used 90+ days/year met these tests.
What should I do about my FHL property now?
Four main strategic options: (1) Continue short-let, accept Section 24 + no capital allowances - if rental yields strong + you can absorb higher tax, no change needed. Best for high-yield properties + lower marginal tax rates. (2) Convert to long-term let (AST) - reduces management hassle + might align with new market. Lower yields typically; potentially eligible for BTL incorporation strategies. (3) Sell the property - if values still strong + tax position deteriorating significantly. Watch CGT - April 2026 BADR rate is 18% same as standard 18%/24% for higher-band. (4) Incorporate to Ltd - Ltd structure escapes Section 24 (full interest deduction). Major upfront cost (SDLT + CGT trigger) but worthwhile for portfolios + leveraged properties. See our incorporation guide.
Are there any transitional provisions?
Limited. (a) Capital Allowances grandfathering: existing pools of capital allowances continue for items acquired pre-April 2025 - WDA continues, but no new AIA. (b) BADR claim window: properties sold by 5 April 2025 could claim BADR under FHL rules. Many landlords accelerated sales to use this; if you missed the window, BADR is now lost for residential. (c) Losses carried forward: FHL losses pre-April 2025 can be offset against post-April rental income (treated as ordinary rental losses thereafter). (d) Pension contributions: relevant earnings test applies year-by-year; previous years' FHL contributions don't need to be unwound.
Can I escape Section 24 by incorporating my FHL?
Yes - by transferring to a limited company. Ltd ownership: (a) Full mortgage interest deductible against rental profits, (b) CT 19/25% on profits instead of personal IT, (c) Capital allowances available on plant + machinery, (d) Flexible profit extraction via dividends or retention. Costs: (a) Stamp Duty Land Tax (SDLT) on transfer (3% surcharge + 15% NRSDLT for >£500k properties = significant). (b) CGT trigger on transfer at market value - deferrable under Section 162 incorporation relief IF you have an active business (not passive investment - which is rare for FHL). (c) Mortgage rearrangement at Ltd BTL rates (0.5-1.5% higher). For multiple FHL properties + higher-rate landlords, incorporation often makes sense. Single property + basic-rate: usually not worth incorporating.
How does Airbnb model change?
Most Airbnb operators pre-April 2025 qualified as FHL + benefited from regime. Post-abolition: same tax treatment as long-let landlord. Practical impacts: (a) Less attractive marginally - tax cost ~£1-£5k/yr more for average Airbnb. (b) Higher-end properties still profitable - yield offsets tax loss. (c) Some Airbnb owners pivoting to: long-let (less hassle, lower yield), serviced apartment model (still treated as letting), licensing-style commercial structure (e.g. operating company licensing to Airbnb). (d) Local authority licensing now required in many areas (Edinburgh, parts of London, popular tourist towns) - additional cost + compliance. (e) "Mid-let" model (1-3 month corporate / relocation lets) emerging - between Airbnb + AST.
What's "Replacement Domestic Items Relief"?
Section 311A ITTOIA 2005. Tax relief on replacing furniture / appliances / household items in residential lettings. Allows deduction for replacement cost minus any sale proceeds of the old item, minus any improvement element (just replacement, not upgrade). Modest relief vs Capital Allowances pre-abolition: capital allowances allowed FULL cost of new items (AIA 100% in year of purchase); RDIR only covers REPLACEMENTS (not initial fit-out). Effect for FHL-converted-to-AST: lose initial fit-out deductions, gain only basic replacement relief on ongoing maintenance. Modest mitigation.
Should I sell now while market is strong?
Depends on multiple factors. Arguments for selling: (a) Tax position worse post-abolition + may deteriorate further if government raises CGT. (b) Property values still high in many markets - exit at peak. (c) Cash freed for other investments (ISA, pension, business). (d) Reduced management hassle. Arguments against: (a) CGT cost - 18%/24% on gains since acquisition. (b) Replacement income harder to find at same yield. (c) FHL-specific properties often have premium value vs comparable AST - selling forces value loss. (d) Long-term capital appreciation potential. Most analyses show: incorporate for portfolios; sell only if you wanted to anyway + tax change makes timing better; otherwise continue letting + accept higher tax.