Following announcements in 2024’s Spring and Autumn Budgets, from April 2025, the Furnished Holiday Let (FHL) tax status is due to be abolished.
If you’re a holiday homeowner, this change could have a big impact on how your property is taxed and managed. For years, FHL status has provided valuable perks, such as tax relief on profits, eligibility for capital allowances, and reduced Capital Gains Tax when selling. With these benefits coming to an end, there’s no time like the present to reassess how your property is classified for tax purposes.
We’ve outlined the key details below, along with guidance on how to make the transition as smooth as possible.
What is an FHL?
A Furnished Holiday Let (FHL) is a type of property business that meets specific criteria. To qualify, a property must be available for commercial holiday letting for at least 210 days a year, and rented out to short-term visitors for at least 105 of those days.
FHLs have traditionally come with several tax advantages, making them an attractive option for holiday homeowners. These include:
- Eligibility to claim capital allowances.
- Income from the property being classed as ‘earned’ for pension contributions.
- Access to various Capital Gains Tax reliefs, such as Business Asset Disposal Relief (BADR).
These benefits have been a significant draw for property owners, though upcoming changes may require a fresh approach to managing your holiday let.
What are the tax changes for FHLs in 2025?
From 6th April 2025 (1st April 2025 for companies), income and gains from FHLs will be treated as part of the owner’s general property business, and subject to the same tax rules as other property income and gains.
Here are the key changes to be aware of:
- Finance costs: Interest on finance costs will be restricted to the basic rate of Income Tax.
- Capital allowances: Capital allowances on qualifying expenditure will no longer be able to be claimed.
- Domestic items relief: FHLs will qualify for replacement of domestic items relief, in line with other property businesses.
- Capital Gains Tax (CGT) reliefs: From 5th April 2025, reliefs such as Business Asset Disposal Relief, Rollover Relief, and Gift/Holdover Relief will no longer apply.
- Pension contributions: Income from FHLs will no longer count as relevant UK earnings when calculating the maximum tax relief available for personal pension contributions.
These changes will impact individuals, companies, and trusts operating or disposing of properties previously classified as a furnished holiday let. From April 2025, the current FHL tax relief regime will be abolished, and qualifying properties will instead be taxed in the same way as long-term residential or commercial lets.
In practical terms, this means:
- The FHL and UK Property sections of your tax return will merge into a single section, where income and expenses for all UK properties are reported together. Tax will be calculated on the combined net profit of these lets.
- While the method for calculating holiday let profits will remain unchanged, properties losing FHL status will no longer qualify for the special tax reliefs previously available to FHLs.
Another change worth noting, is that the higher Capital Gains Tax rate for property disposals will reduce from 28% to 24% (and 18% for basic rate taxpayers).
So, FHL benefits are ending – what should I do next?
While the changes to the FHL status may feel overwhelming, there’s good news: it may be beneficial to reassess how your property is classified for tax purposes. Here’s what we suggest:
Before you do anything, consult with your accountant
Given the complexities involved, we always recommend consulting with a tax advisor or accountant before making any big changes to your property’s compliance when it comes to government legislation and regulations. They’ll guide you through the process, and can help you assess whether any changes are the right choice for your property, as well as develop tailored strategies to increase reliefs and adjust to legislative changes effectively.
Check your eligibility for business rates – and whether these would be beneficial to you
One alternative to FHL status is to explore moving your property onto business rates, which could offer several benefits over standard council tax. This includes:
- Small business rates relief
This may significantly reduce your business rates—or even eliminate them entirely. - VAT registration threshold
Staying below the VAT registration threshold (currently £85,000) while on business rates means you won’t need to charge VAT on your bookings. - Tax deductions and business expenses
Moving to business rates allows you to claim a wider range of business-related expenses, such as marketing, property maintenance, and services. - No council tax
As long as your property is available for letting at least 140 days a year and actually let for 70 days, it will be considered a business. - Support for growth and expansion
Open up access to grants, government relief schemes, and other support designed for small businesses, helping you invest in and grow your holiday let.
Making the switch to business rates
Moving your holiday home from FHL or council tax to business rates involves a few steps:
First, you’ll want to ensure your property meets eligibility criteria by being available to let for at least 140 days per year (and actually let for at least 70 days), keeping thorough records of bookings and availability.
Next, contact the Valuation Office Agency (VOA) to classify your property as a self-catering business and determine its rateable value based on rental income. Once reclassified, you can apply for Small Business Rates Relief through your local council, ensuring you meet all requirements and submit the necessary forms.
At Bloom Stays, we know that these tax changes may feel daunting, however we’re dedicated to making the process of running a holiday let an easy and enjoyable experience. By understanding the new tax framework, reviewing your eligibility for business rates, and seeking professional advice, you can position your property for continued success in 2025 and beyond. As for the rest? Let Bloom Stays take care of it. Interested in letting with us? Get in touch with our friendly team today on the phone, on 01227 903404, via email, at [email protected] or on WhatsApp, on 07361584861.
