FHL Tax Calculator UK (2026/27)

The Abolition of the Furnished Holiday Lettings (FHL) Regime

For over four decades, furnished holiday lettings enjoyed privileged commercial tax treatment under Chapter 6 of Part 3 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) and Sections 241 to 241A of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). These statutory provisions treated qualifying short-term holiday rentals as active commercial trades rather than passive property investment businesses.

Following legislative reform enacted under the Finance Act 2025, the separate FHL regime was abolished from 6 April 2025. In the 2026/27 tax year, all furnished holiday accommodation properties are fully integrated into standard UK residential property businesses. Holiday let operators face identical statutory rules to standard buy-to-let landlords, fundamentally altering net profitability, mortgage finance deductibility, and capital gains relief.

FHL Regime vs Standard Residential Property (2026/27)

The Section 24 Mortgage Interest Trap Explained

The most acute financial shock of FHL abolition stems from Section 272A ITTOIA 2005, universally known as Section 24. Under Section 24, mortgage interest and other financing costs (such as arrangement fees and loan interest) cannot be deducted from gross rental turnover to arrive at net taxable profit.

Instead, landlords are taxed on their gross profit before finance costs, and are subsequently granted a tax reduction equal to 20% of the finance costs under Section 274A ITTOIA 2005. For higher rate (40%) and additional rate (45%) taxpayers, this creates an immediate structural tax increase:

• Higher Rate (40%) Taxpayers: Lose 40% relief and receive only 20% back, suffering an effective 20% tax penalty on every pound of mortgage interest paid.
• Artificial Income Inflation: Because mortgage interest is not deducted, your Adjusted Net Income (ANI) surges. An individual earning £45,000 from employment and £25,000 in gross holiday let profits (with £15,000 in mortgage interest) sees their ANI jump from £55,000 to £70,000.
• High Income Child Benefit Charge (HICBC): Pushing ANI into the £60,000 to £80,000 band triggers clawback of Child Benefit under Section 681C ITEPA 2003.
• The £100,000 Taper Trap: If ANI crosses £100,000, the landlord loses £1 of Personal Allowance for every £2 of income, creating a savage 60% marginal income tax rate.

The 3-Year BADR Cessation Window (TCGA 1992 s.169I)

Holiday let operators planning an exit should pay critical attention to the 3-year post-cessation rule under Section 169I(4) TCGA 1992. Under standard business asset rules:

If your holiday accommodation met the statutory FHL conditions (105 days let, 210 days available, commercial basis) for a continuous 2-year period up to 5 April 2025, and the commercial trading business ceased on that date, you have exactly 3 years from the date of cessation (until 5 April 2028) to sell the property and claim Business Asset Disposal Relief.

Frequently Asked Questions About FHL Abolition