If you have a furnished holiday let (FHL) trade, you have enjoyed some significant tax advantages over the years. But as of April 2025, that special tax regime has been abolished and 2025/2626 is the first full tax year operating under the new rules.
What Exactly Changed?
From the 2025/26 tax year onward, your holiday let income is now taxed exactly like any other residential property income .
Key Changes Affecting Your 2026 Tax Position:
- No More Capital Allowances on New Furnishings
Previously, you could claim capital allowances on furniture, fixtures, and equipment. Now, you can only claim replacement of domestic items relief when you replace qualifying moveables like sofas, white goods, and carpets and only for like-for-like replacements. - Mortgage Interest Relief Restricted
The full deduction of mortgage interest against profits is gone. For individual landlords, interest relief is now limited to a basic 20% tax credit - Capital Gains Tax Reliefs Withdrawn
Access to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and rollover relief is no longer available for disposals from April 2025. Gains on sale are now taxed at standard residential rates (18%/24%). - Loss Treatment Changed
Property business losses can only be carried forward against future property profits, sideways set-off against other income is no longer permitted.
What This Means for Your 2026 Tax Return
If you’re preparing your Self Assessment for the 2025/26 tax year (due 31 January 2027), you need to:
- Report all holiday let income under standard property income rules
- Calculate allowable expenses using residential letting guidelines
- Apply the 20% mortgage interest credit rather than full deduction
- Claim only replacement of domestic items relief for furnishings
- Forget about any FHL-specific capital gains calculations
The Bottom Line
The abolition of the Furnished Holiday Let tax regime represents one of the most significant changes to UK property taxation in recent years
