Furnished Holiday Lettings: What Landlords Need to Know About the April 2025 Tax Shake-Up

The End of FHL Tax Perks

If you own a furnished holiday let (FHL), there are big changes coming that could impact your income and future tax bills. From April 2025, the special tax treatment that FHLs have enjoyed for years will come to an end, as the government moves to bring them in line with standard residential rentals. These changes apply from 6 April 2025 for individuals and from 1 April 2025 for companies, and they affect everything from income tax to capital gains.

What Made FHLs Different?

Until now, FHLs were treated more like businesses than investments, which brought a range of tax benefits. Landlords could claim capital allowances on furniture and equipment, deduct full mortgage interest, and make pension contributions based on the rental income. They also enjoyed valuable reliefs when selling, such as Business Asset Disposal Relief (BADR), which reduced the capital gains tax (CGT) rate to just 10%.

Income Tax Changes from April 2025

From April 2025, however, rental income from FHLs will be treated just like any other residential letting income. That means you’ll no longer be able to claim upfront tax relief on furnishings and appliances when you first buy them. Instead, you can only deduct the cost when you replace them in the future. Existing balances from capital allowances can still be used up gradually, but new purchases won’t qualify.

Mortgage or loan interest will no longer be fully deductible either. Instead, landlords will only get a basic-rate tax credit of 20%, regardless of whether they pay higher or additional rate tax. If you’ve been using your FHL income to support pension contributions, that may no longer be possible either, unless you have other sources of earned income. Without those, you’ll be restricted to the basic contribution allowance of £3,600 per year (£2,880 after tax relief).

Capital Gains Tax: What You’ll Now Pay

The tax changes also affect how gains from the sale of an FHL are treated. Under the current rules, many landlords have been able to pay CGT at the reduced 10% rate by claiming BADR. That option is disappearing. So is rollover relief, which has allowed you to defer a gain when reinvesting in a new FHL. After April 2025, any gains could be taxed at the usual residential rates of 18% or 28%, depending on your income.

Inheritance Tax Position Remains Unchanged

One thing that isn’t changing is inheritance tax. HMRC has always viewed FHLs as investment assets rather than trading businesses, so they’ve never qualified for Business Property Relief. This means that even though the income was once treated favourably, FHLs were never exempt from inheritance tax in the first place.

Anti-Forestalling Rules: No Easy Workarounds

It’s also important to note that the government has put anti-forestalling rules in place. These took effect from 6 March 2024 and are designed to stop landlords from exploiting the current rules by using backdated contracts to claim the soon-to-be-defunct reliefs.

Time to Act: Prepare for the 2025/26 Tax Year

If you’re a landlord with one or more FHLs, it’s time to start planning. These changes will first appear in tax returns for the 2025/26 tax year, due by 31 January 2027. But the decisions you make now, especially if you’re thinking of selling, could have a major effect on your tax bill.

How Zeus Accountants Can Help

At Zeus Accountants, we’re here to help landlords navigate the shifting landscape. Whether you're unsure how the new rules affect your specific situation, or you need guidance on how to maximise your tax efficiency going forward, our team can support you every step of the way. Get in touch for expert, personalised advice on property taxation.