Furnished Holiday Lettings (FHL) Abolition Guide

1. The Legislative Repeal: What Was the FHL Regime?

Established under Chapter 6 of Part 3 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) for individuals, and the Corporation Tax Act 2009 (CTA 2009) for companies, the Furnished Holiday Lettings regime provided privileged tax status for short-term holiday accommodations that met statutory occupancy tests (available for 210 days, commercially let for 105 days, and no single long-term let exceeding 31 days).

Qualifying properties were deemed to be commercial trading businesses rather than passive investment property businesses. This entitled owners to full mortgage interest deductibility, generous capital allowances, Capital Gains Tax business reliefs, and pension-relieved earnings treatment.

Under the Finance Act, Parliament repealed Chapter 6 Part 3 ITTOIA 2005 with effect from 6 April 2025for individuals (and 1 April 2025 for corporation tax). Holiday let income is now merged directly into the taxpayer's general UK or overseas property business, eliminating the historic tax divide between long-term residential buy-to-let landlords and holiday home operators.

2. Section 24 Finance Cost Restriction: The Higher-Rate Squeeze

The most severe commercial consequence of abolition is the imposition of Section 24 of ITTOIA 2005 on holiday let mortgages:

Furthermore, inflating taxable income from £13,000 to £28,000 raises the landlord's Adjusted Net Income (ANI). This can inadvertently trigger the £100,000 Personal Allowance taper (creating a 60% marginal tax trap) or claw back Child Benefit via the High Income Child Benefit Charge (HICBC) between £60,000 and £80,000.

3. Abolition of Capital Allowances & Transitional Pool Rules

Under the former regime, holiday lets qualified for plant and machinery capital allowances under the Capital Allowances Act 2001. Landlords could claim 100% Annual Investment Allowance (AIA) or Writing Down Allowances (WDA) on furniture, soft furnishings, hot tubs, high-end kitchen appliances, and embedded fixtures.

4. Capital Gains Tax Impact: Loss of BADR & Gift Relief

Disposing of a holiday let after abolition triggers substantial Capital Gains Tax consequences under the Taxation of Chargeable Gains Act 1992 (TCGA 1992):

• Loss of Business Asset Disposal Relief (BADR): FHL properties no longer qualify for the preferential 18% BADR rate. All gains are taxed at residential CGT rates: 18% for basic-rate taxpayers and 24% for higher/additional-rate taxpayers.
• Loss of Gift Holdover Relief (Section 165 TCGA 1992): Owners can no longer gift a holiday let to children or trusts without triggering an immediate dry Capital Gains Tax charge based on open market value.
• Loss of Rollover Relief (Section 152 TCGA 1992): Capital gains can no longer be rolled over into the acquisition of new commercial or trading assets.
• 60-Day UK Property CGT Reporting: Because holiday lets are residential property, any capital gain arising on disposal must be reported and the tax paid within 60 days of completionvia HMRC's online Capital Gains Tax on UK property service.

5. Pension Relief, Loss Pooling & Joint Ownership (Form 17)

Abolition alters several ancillary tax provisions:

• Pension Relief (Section 189 Finance Act 2004): FHL profits no longer constitute "relevant UK earnings". Holiday let profits can no longer support tax-relieved personal pension contributions (such as into a SIPP).
• Loss Offset Merging: Under the old rules, FHL losses could only be carried forward against future FHL profits. Following repeal, unused FHL loss carry-forwards are merged into the landlord's ongoing UK property business loss pool under Section 118 Income Tax Act 2007.
• Joint Ownership & Form 17: Under the FHL regime, married couples and civil partners could flexibly allocate profits between themselves to maximise basic-rate tax bands. Under ordinary property rules (Section 836 Income Tax Act 2007), income is strictly taxed 50:50 by default. To alter this split, spouses must hold unequal beneficial shares as tenants in common, execute a valid Declaration of Trust, and lodge HMRC Form 17 within 60 days.

6. Local Authority Council Tax vs Business Rates Distinction

It is vital to distinguish statutory Income Tax treatment from local authority rating valuation:

The abolition of the FHL Income Tax regime does not automatically abolish business rates eligibility for holiday lets. In England, a self-catering property remains eligible for Non-Domestic Business Rates (and potential Small Business Rate Relief) if it is available to let commercially for short periods for at least 140 days in the current and previous year, and actually let for at least 70 days. Properties failing these occupancy thresholds revert to standard domestic Council Tax, which may be subject to local second-home premium council tax multipliers of up to 100% or 200%.