Furnished Holiday Let Tax Changes 2025: What UK Airbnb & holiday let owners need to know

For many years, the FHL regime provided tax advantages that made operating holiday lets significantly more attractive than standard buy-to-let properties. These advantages included full mortgage interest relief, access to tax reliefs, and the ability to use rental income as pensionable earnings.

Since April 2025, these rules have changed.

For owners operating short-term rentals through platforms such as Airbnb and Booking.com, it is important to understand how the new tax framework will affect profitability, financing, and long-term planning.

Pass the Keys works with specialist tax partners, Zeal Tax, who advise short-term rental owners across the UK.

This guide explains the key changes and what property owners should consider before the rules come into force.

The abolition of the FHL regime will take effect on the following dates:

• 1 April 2025 – for holiday lets owned within limited companies
• 6 April 2025 – for property owned by individuals
  

From these dates onward, income from short-term rental properties will generally be taxed under the standard property income rules, aligning them more closely with long-term residential rental taxation.

Mortgage Interest Relief

Under the current FHL rules, mortgage interest and finance costs are fully deductible when calculating taxable profit.

After April 2025:

• Mortgage interest relief will be restricted to a 20% basic rate tax credit
• This mirrors the rules already applied to traditional buy-to-let landlords
• Higher-rate taxpayers will see increased tax liabilities

For leveraged properties, this could materially affect net returns.

Capital Gains Tax Relief

Holiday lets currently qualify for several business-related Capital Gains Tax reliefs, including:

• Business Asset Disposal Relief (BADR)
• Rollover Relief
• Gift relief/holdover relief

These reliefs will no longer apply to holiday lets after the FHL regime is abolished.

This means:

• Future property sales may incur higher capital gains tax changes
• Exit planning may require more careful consideration

Profit Splitting Between Spouses

The FHL regime currently allows owners flexibility in how profits are allocated between spouses or partners.

After April 2025:

• Income will generally be taxed according to legal ownership shares
• Alternative allocations may require a formal declaration of trust

Owners who currently rely on flexible profit splitting may want to review their ownership structures.

Pension Contribution Eligibility

Currently, profits from FHL properties are treated as relevant earnings for pension purposes.

Once the regime ends:

• Short-term rental income will no longer count as pensionable earnings
• This could reduce the amount of tax-efficient pension contributions owners can make.

Capital Allowances on Holiday Let Properties

One area frequently overlooked by property owners is capital allowances on embedded fixtures within a property.

While furniture allowances will change after the FHL regime ends, certain building fixtures may still qualify for capital allowance claims.

Examples of potentially qualifying embedded fixtures include:

• Heating systems
• Kitchen & Bathrooms
• Electrical installations
• Plumbing infrastructure
• Ventilation and air-conditioning systems
• Integrated lighting
• Security systems

Identifying these fixtures often requires a specialist survey and cost analysis, as many qualifying items are built into the structure of the property.

Because of the technical complexity involved, many property owners seek advice from specialist tax consultants who focus specifically on the short-term rental sector.

If you started your holiday let before April 2015, you can still claim your capital allowances until January 2027.

Claim Your Capital Allowances [Pass The Keys] • Zeal Tax

Alongside the FHL changes, owners should also prepare for Making Tax Digital (MTD) for Income Tax.

This will require property owners to maintain digital records and submit quarterly updates to HMRC.

The rollout timeline is expected to follow these thresholds:

Owners exceeding these thresholds will need to use MTD-compatible accounting software.

Even if your income is currently below the thresholds, adopting digital systems early can simplify future compliance.

With the removal of the FHL regime, many property owners are reviewing the structure of their property investments.

Potential considerations may include:

Ownership Structures

Some owners explore alternative structures such as:

• Limited companies
• Partnerships or LLPs
• Adjusted beneficial ownership between spouses

Each structure carries different tax, legal, and financing implications.

Operational Structures

In some cases, owners separate property ownership from operational management through:

• Property management companies
• Operating entities responsible for bookings and guest services

This can create flexibility in how revenue and operational costs are structured.

Professional advice is important when considering these approaches.

Holiday let taxation sits at the intersection of property tax, business taxation, and construction allowances.

General accountants typically focus on compliance and reporting, whereas specialist advisors may also examine:

• Embedded fixtures within properties
• Historic capital allowance opportunities
• Ownership structuring
• Operational structuring

This type of analysis often requires both tax and property cost expertise.

The abolition of the Furnished Holiday Let regime represents a significant shift for the UK short-term rental market.

While some tax advantages will disappear, property owners still have opportunities to:

• Review their ownership structure
• Understand the impact of mortgage interest restrictions
• Explore capital allowance opportunities
• Prepare for Making Tax Digital reporting

Understanding these changes early allows property owners to make informed decisions before the new rules take effect.

Pass the Keys is not a tax advisory firm and does not provide tax advice. The information in this article is intended for general guidance only.Property owners should always seek advice from qualified tax professionals before making financial or structural decisions.Pass the Keys works with specialist tax partners including Zeal Tax, who focus on taxation for short-term rental and holiday let owners.

Pass the Keys is not a tax advisory firm and does not provide tax advice. The information in this article is intended for general guidance only.

Property owners should always seek advice from qualified tax professionals before making financial or structural decisions.

Pass the Keys works with specialist tax partners, including Zeal Tax, who focus on taxation for short-term rental and holiday let owners.