Furnished Holiday Lets have offered landlords attractive tax breaks for many years, helping them offset expenses and claim capital allowances on fittings and furniture. These properties have been popular among investors looking for a steady income from short-term rentals, especially as staycations become more common in the UK. According to VisitBritain, domestic overnight trips in England reached over 93 million in 2024, illustrating the ongoing appetite for holiday rentals that offer flexibility and a home-from-home feel.
From April 2025, however, the Government will withdraw some of the advantages that have boosted this sector. The changes could make a difference to your annual returns. This blog explains what is happening and how you might respond.
What is changing in 2025
Current rules for Furnished Holiday Lets mean you can claim capital allowances on furniture and fixtures. You can also deduct mortgage interest to reduce your taxable profits. From April 2025, these allowances and reliefs will be removed or significantly reduced, in line with Government plans to streamline the UK tax system.
Some property owners have relied on these benefits to improve their cashflow. That is set to change. Mortgage interest will become a simple finance cost that is no longer deductible. You may see this shift your property from a profit to a loss or at least reduce the margin you had come to expect. The Government has stated that this measure will bring FHLs closer in line with other types of property letting.
Who will be affected?
These new measures will affect anyone who owns a Furnished Holiday Let and meet the qualifying criteria, which currently include giving the property on a short-term basis to the public for at least 105 days per year. You might be an individual landlord, or you could be managing your property through a limited company. Either way, your tax treatment is set to change.
Companies that hold FHLs will also need to review their approach. Removing mortgage interest relief makes it harder to offset finance costs. Depending on your overall situation, this could lead to higher corporation tax bills. More information about registering or updating your company details is available on the Companies House website.
Possible financial impact
Removing mortgage interest relief and capital allowances will likely increase your overall tax liability. This may be particularly true if your property carries a large mortgage. You must review whether your FHL remains profitable under the new tax rules.
Some landlords might consider selling, while others may consider switching to standard residential lets. Others may consider paying down debt to reduce the impact of lost reliefs. Each property owner’s situation is different, so you may want to weigh up factors such as rental demand, property value trends and your long-term plans.
Keeping proper financial records will be more important than ever. Tax reporting for 2025/26 could be more complex, especially if you have always claimed capital allowances on furniture or equipment. Gathering detailed data now will help you make informed decisions in good time.
Alternative strategies
Some FHL owners are exploring alternative approaches. These include:
- Refinancing: A new mortgage rate or different loan structure might ease the impact of lost interest relief. However, this could still require additional checks on affordability.
- Paying off capital: If you have savings, reducing your loan balance may offset the hit from the removal of mortgage interest relief.
- Changing property use: You might decide to switch to long-term letting or other business models. There are different rules for standard buy-to-let, so compare your potential returns before making any moves.
- Incorporating: Some owners prefer holding properties within a limited company. The new rules will affect companies as well, but limited companies have their own tax framework. This option involves careful planning and potential stamp duty charges, so consider professional advice first.
Our advice for affected landlords
We recommend starting with a thorough review of your financial position. Look at your projected income and expenses for the 2025/26 tax year, and factor in local market trends and any changes in visitor demand.
If you manage a portfolio of holiday lets, you may find some are less profitable than others. That might influence decisions about which properties to keep. You may also want to consider short-term actions such as investing in energy efficiency or other features that could increase your nightly rate. Higher rental income might offset the loss of tax reliefs.
We also suggest seeking advice from an experienced accountant. Coveney Nicholls is here to guide you through the next steps. Our property tax team can offer personalised calculations and strategies for FHL owners.
Preparing for the future
This change does not need to cause panic. It is an adjustment, and property markets often adapt. You can step back to see how your Furnished Holiday Let fits your broader goals. If you decide to keep your property in this sector, confirm compliance with the letting conditions and maximise your rental income during the peak holiday seasons.
Deciding what to do with your Furnished Holiday Let will depend on multiple factors. There is no one-size-fits-all approach. Tapping into professional expertise can save you from unforeseen tax surprises and help you focus on your core objectives, whether retiring earlier or growing your property portfolio.
Next steps
We want you to feel prepared. The loss of tax advantages may affect your bottom line, but you have options. Adjust your pricing, refinance or shift your approach to property letting. You could also explore new ways of attracting holidaymakers to maximise occupancy rates.
If you want a clear picture of how these changes might affect you, speak to our team.
We can help you plan ahead and decide on the right approach for your Furnished Holiday Let. Get in touch so we can discuss your situation and guide you through the 2025 changes.