If you own a furnished holiday let, you have probably heard the headline already — the FHL regime ended on 6 April 2025. What’s had less coverage is what that actually means once you’re sitting with your accountant in front of the numbers, working out what’s changed and what you can still do about it.

We’re now more than a year past the cut-off, which means the first full set of accounts under the new rules are landing on landlords’ desks. For a lot of people, that’s the moment it stops being a policy headline and starts being a real tax bill.

What actually changed

Before April 2025, a furnished holiday let wasn’t taxed like a normal rental property. It was taxed more like a small trading business — and that came with genuine advantages:

• Full mortgage interest relief. You could deduct 100% of your finance costs against rental profit, rather than being restricted to a basic-rate tax credit.
• Capital allowances. You could claim relief on furniture, fixtures, and integral features like heating systems — not just on replacing items, but on buying them in the first place.
• Business Asset Disposal Relief (BADR) on sale. Gains on selling the property could be taxed at a flat 10% rate, instead of standard residential CGT rates.
• Pension-relevant earnings. FHL profits counted as earnings you could make tax-advantaged pension contributions against.

From 6 April 2025, all of that fell away. Furnished holiday lets are now taxed exactly the same as any other residential rental property. Mortgage interest is restricted to a 20% tax credit. Capital allowances on new purchases are gone — you’re back to relief only on replacing existing domestic items. And BADR no longer applies on sale, so gains are taxed at standard residential property CGT rates instead of 10%.

The part most people miss: joint ownership between spouses

This is the one that catches couples out, and it’s quietly significant. Under the old FHL rules, married couples and civil partners running a holiday let together could split the profit however they liked, broadly reflecting who actually did the work — bookings, cleaning, guest management — rather than who legally owned what share of the property.

That flexibility has gone. Property income between spouses now defaults to a strict 50:50 split based on underlying legal ownership, unless you’ve filed a Form 17 declaration with HMRC showing unequal beneficial ownership. If you and your partner have been splitting profit 80:20 to reflect effort, and you haven’t formalised that with HMRC, you may now be taxed on a 50:50 basis regardless of what you actually intended.

The fix usually involves looking at the underlying legal ownership of the property — not just filing a form — because Form 17 only works if the beneficial ownership split actually matches the income split you want to declare. If it doesn’t, you may need to formally adjust ownership shares first, which has its own tax consequences worth thinking through properly.

What we would actually look at with you

If you have got one or more FHLs, the conversation we’d want to have covers:

1. What’s your real net return now? Run the numbers with the finance cost restriction and lost capital allowances built in. For a leveraged holiday let, the gap between pre- and post-2025 profit can be substantial.
2. Is incorporation worth revisiting? Holding the property through a company changes how finance costs and profits are taxed, and may be more attractive now that the personal tax advantages of FHL status have gone. It’s not automatically the right answer, but it’s worth modelling properly rather than assuming.
3. Spousal ownership and Form 17 — sorted out properly, not just submitted as a form-filling exercise.
4. Loss carry-forward. One genuine upside: FHL losses can now be set against profits from your other rental properties, where previously they were ring-fenced to the same FHL business. If you’re sitting on unused losses, it’s worth checking whether they can now be used.
5. Local council tax surcharges on second homes, which have doubled in some areas and are a real cash-flow factor separate from the income tax position.

The bottom line

The FHL regime didn’t get tightened — it was removed entirely. If your accountant hasn’t already walked you through what your actual numbers look like under the new rules, that’s a conversation worth having before your next tax return, not after.

Northwyn works with landlords across the UK on property tax structuring, including FHL transition planning, incorporation analysis, and joint ownership arrangements. If you would like a clear view of where you stand, request a Tax Health Check.

FAQ

What happened to Furnished Holiday Let tax relief?
The FHL regime was abolished on 6 April 2025. Holiday lets are now treated as ordinary residential property — meaning the favourable tax treatment (full mortgage interest deduction, capital allowances, business asset disposal relief) is gone. If you haven’t reviewed your position since April 2025, you are likely paying more tax than you realise.

Can I still claim mortgage interest?
Not in full. Holiday lets now fall under Section 24, the same restriction that applies to buy-to-let landlords. You get a 20% tax credit on mortgage interest rather than a full deduction — which can push higher-rate taxpayers into a significantly worse position. Whether a restructure helps depends on your specific numbers.

Can FHL losses be used against other property income?
No — not anymore. Under the old regime, FHL losses could be offset against general income. Post-April 2025, losses are ring-fenced within your property business. They carry forward, but only against future property income.

Should I incorporate my holiday let?
For some landlords, yes — a limited company still deducts mortgage interest as a full business expense and pays corporation tax rather than income tax. But incorporation isn’t free: SDLT, potential CGT on transfer, and ongoing costs all factor in. It’s a numbers question, not a blanket answer. 

Does Form 17 still apply to holiday lets?
Now it does. Under the old FHL rules, Form 17 didn’t apply because holiday lets were taxed as a trade. Post-abolition, they are investment income — so married couples and civil partners can use Form 17 to split income in line with actual beneficial ownership, potentially saving meaningful tax where one partner pays a lower rate.