Is a UK holiday let still worth buying now the tax breaks have gone? It is the right question to ask before you look at another cottage with a sea view, because the answer moved materially on 6 April 2025 and moves again in April 2027.
The short version: holiday lets can still work, but for completely different reasons than they did three years ago. The tax code no longer gives them a head start over a standard rental. What is left is a small hospitality business judged purely on occupancy, nightly rate, and how much of the work you do yourself.
What did the abolition of the FHL regime actually change?
It removed every tax advantage a furnished holiday let had over an ordinary buy-to-let, and left the regulation and the running costs exactly where they were. The furnished holiday lettings rules ceased for tax years beginning on or after 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax (HMRC PIM4165). A holiday let is now simply part of your UK or overseas property business, taxed alongside your other rentals.
| Feature | Under FHL, to April 2025 | From April 2025 |
|---|---|---|
| Mortgage interest | Deducted in full from profit | Basic-rate tax reduction only |
| Furniture and equipment | Capital allowances on new spend | No relief on the initial fit-out |
| Profits and pension relief | Counted as relevant UK earnings | Do not count |
| Reliefs on sale | BADR, rollover, gift and loan reliefs | Ordinary residential property treatment |
| Splitting profit with a spouse | Any proportion you chose | Follows beneficial ownership |
Nothing on that list was replaced with something else. The regime was repealed, not reformed.
How much does the mortgage interest restriction really cost?
For a geared higher-rate owner it is the largest single item, and it is worth roughly 20% of your annual interest bill in lost relief. Interest is no longer a deduction. Instead you get a tax reduction at the basic rate, which is the same Section 24 restriction long-let landlords have lived with since 2020.
Here is one cottage, held personally by a higher-rate taxpayer. Everything below is an assumption you should replace with your own figures, not a market rate.
- Purchase price £300,000, with a £180,000 interest-only holiday-let mortgage at an assumed 6.0%, giving £10,800 of interest a year. Holiday-let rates come from a smaller lender pool and move often, so check live products.
- 150 nights sold at an assumed average of £190, giving £28,500 of gross bookings. Occupancy of this shape is a coastal assumption, not a national average.
- £12,000 of annual running costs: platform and booking fees £2,000, cleaning and laundry £3,300, utilities and broadband £2,900, repairs and garden £1,800, consumables and replacements £1,400, specialist short-let insurance £600. Council tax is £0 here because the property is assessed for business rates and covered by Small Business Rate Relief, which is a separate regime discussed below.
That leaves £16,500 of operating profit before interest, and £5,700 of cash after paying the lender. The cash never changes across the three columns below. Only the tax does.
| Old FHL rules | 2026-27 | From April 2027 | |
|---|---|---|---|
| Operating profit before interest | £16,500 | £16,500 | £16,500 |
| Mortgage interest | -£10,800 | -£10,800 | -£10,800 |
| Cash before tax | £5,700 | £5,700 | £5,700 |
| Taxable profit | £5,700 | £16,500 | £16,500 |
| Tax before any reduction | £2,280 (40%) | £6,600 (40%) | £6,930 (42%) |
| Interest tax reduction | none needed | -£2,160 (20%) | -£2,376 (22%) |
| Tax due | £2,280 | £4,440 | £4,554 |
| Post-tax cash | £3,420 | £1,260 | £1,146 |
Two things fall out of that. First, abolition cost this owner £2,160 a year, which is exactly 20% of the interest bill: the gap between relief at 40% and relief at 20%. Post-tax cash fell by roughly two thirds while nothing about the property or the bookings changed.
Second, April 2027 is a much smaller step than the headlines suggest for this landlord. Property income moves onto its own rates then, with a property basic rate of 22%, a property higher rate of 42% and a property additional rate of 47% (gov.uk technical note). The finance-cost reduction is then given at 22% rather than 20%, which claws back part of the 2 point rate rise. Here it costs another £114 a year. Our 2027 property income tax post covers the wider picture, including Making Tax Digital.
The uncomfortable corollary: almost all of this is a mortgage story. An unmortgaged cottage on the same numbers pays 40% on £16,500 and keeps £9,900, and lost nothing at all from the interest change. Buy with cash and the abolition matters far less than the noise implies. Buy at 60% loan to value and it is the whole ballgame. Model your own version in the buy-to-let cashflow calculator before you offer.
Can I still claim for furnishing a holiday let?
No, not for the initial fit-out, and this is the point owners get wrong most often. New expenditure no longer qualifies for capital allowances (HMRC PIM4180). What survives is replacement of domestic items relief, and the clue is in the name: it relieves the cost of replacing a bed, sofa, fridge or carpet, not the cost of buying the first one.
So kitting out a cottage from scratch now attracts no relief at all. Spend £12,000 on beds, sofas, white goods and crockery for a new holiday let and a 40% taxpayer who could once have relieved that spend in full is roughly £4,800 worse off than under the old regime. Replace the same £12,000 of items in year seven and relief is available then. The money is not lost forever, but it is deferred until things wear out, which is precisely when you least want to buy them.
One piece of good news is often missed: an existing pool survives. A balance sitting in your capital allowances pool at 5 April 2025 continues to attract writing down allowances until it is written off. You do not lose the pool, you just cannot add to it. Our allowable expenses guide covers what still comes off revenue in the ordinary way, which is where more of the fit-out argument now lives.
What did holiday let owners lose on sale?
The full set of trading-business capital gains reliefs, for disposals on or after 6 April 2025 (HMRC Capital Gains Manual CG73505, updated 21 August 2026). Specifically:
- Business Asset Disposal Relief is unavailable for disposals on or after 6 April 2025.
- Rollover relief is unavailable where the replacement asset is acquired on or after 6 April 2025.
- Relief for loans to traders is unavailable.
- Gift holdover relief is caught by the anti-forestalling rules.
There is one transitional door still ajar. BADR can still apply where the holiday letting business genuinely ceased before 6 April 2025, even if the disposal itself comes later. HMRC is explicit that a business is not treated as having ceased merely because the FHL rules were abolished, so this is a narrow point of fact, not a planning device. Separately, anti-forestalling rules bite from 6 March 2024 on contracts entered into with a view to preserving FHL treatment.
For everyone else, a sale is now an ordinary residential property disposal. Our post on capital gains tax when you sell walks through the calculation, and the CGT calculator will size it.
The two consequences almost nobody plans for
Pension contributions. Holiday let profits no longer count as relevant UK earnings when working out your maximum pension tax relief. If a holiday let was the only earned-looking income in your household, the tax-relievable contribution ceiling may now be far lower than you assume. This has a real cash bite and it does not show up anywhere on a rental spreadsheet.
Splitting profit with a spouse. The old FHL freedom to allocate profit between spouses in whatever proportion suited you has gone. Holiday lets now follow ordinary property income rules (HMRC PIM4190): for married couples and civil partners the default is an equal split, and a different split needs both unequal beneficial ownership and a Form 17 declaration filed within 60 days. Couples who casually ran a 90/10 split need a declaration of trust and the form, or the 50/50 default applies. Any FHL losses standing at 5 April 2025 simply pool into the ongoing property business.
What did not change
Three things get blamed on FHL abolition that have nothing to do with it:
- Business rates. The council tax versus business rates test is a separate regime and is untouched. In England it still turns on availability and actual letting days, and many small holiday lets qualify for Small Business Rate Relief. We covered the thresholds in serviced accommodation vs buy-to-let.
- VAT. Holiday lets remain standard-rated supplies. Cross the registration threshold and VAT applies, exactly as before. For a busy multi-property operation this can dwarf the income tax question.
- Planning use class. Whether your letting needs permission is a planning matter, decided locally, and abolition changed none of it.
What is coming next?
Two live items, neither of which has a date you can bank on. England's national short-term let registration scheme, created by the Levelling-up and Regeneration Act 2023, is not live and has no confirmed launch date as at August 2026. It went into private beta from October 2025 and was discussed in the Commons on 13 April 2026 with launch still planned for that year, but there is no live portal, no published fee and no technical guidance yet (gov.uk: delivering a registration scheme for short-term lets). A short-term let for these purposes means accommodation let for fewer than 90 consecutive nights. This is a separate thing from London's already-in-force 90-night planning cap, which we cover in the short-term let registration and 90-day rule post.
The second is energy efficiency. The reformed EPC regime, expected in the second half of 2027, is proposed to bring short-term rentals into EPC scope for the first time regardless of who pays the energy bills, and to remove the exemption for heritage and listed buildings (Reforms to the Energy Performance of Buildings regime, partial government response). Government has said it wants further views on the short-term let sector before finalising, so treat this as a forward risk rather than a settled rule. It matters most if your holiday let is exactly what holiday lets often are: an old, solid-walled, listed cottage. The EPC rules for landlords post sets out the direction of travel for rented homes generally.
So does a holiday let still stack up?
Sometimes, and now for honest reasons rather than tax ones. Strip out the reliefs and a holiday let is a hospitality business with a mortgage attached. It wins where the location genuinely commands a nightly rate and an occupancy a long let cannot match, where you hold it with little or no debt, and where you are willing to run it properly. It loses where you bought it geared to the hilt on a spreadsheet built from the pre-2025 rules.
Test yours the boring way. Take last year's actual nights sold, not the ones you hoped for. Carry every cost a guest generates rather than a tenant. Then apply today's tax treatment, and again at the 2027 property rates, before comparing the result against the same property let on a standard tenancy at a realistic rental yield. If the holiday let only wins under the old rules, it does not win. For the wider tax picture across a portfolio, start with our buy-to-let tax guide.
This is general information, not tax or financial advice. Speak to a qualified accountant about your own circumstances.
