The furnished holiday let tax regime is gone — abolished from April 2025 — and with it went every advantage that made holiday lets the favoured child of property taxation: full mortgage interest relief, capital allowances, the CGT business reliefs and pension-earning status. A holiday cottage is now taxed like any other rental property, with a couple of transitional lifelines still running and a couple of overlooked obligations (VAT above all) that survived the regime they were attached to. Here is the post-FHL rulebook for owners deciding what to do with the cottage.
What was lost, precisely
For income tax, the two big ones: mortgage interest dropped from a full deduction to the standard 20% basic-rate credit — a straight cash cost to higher-rate taxpayers with geared properties — and capital allowances on furniture, kitchens and equipment ended for new spending, replaced by the ordinary replacement-of-domestic-items relief (which covers like-for-like replacements, not initial kit-outs or improvements). Profits also stopped counting as relevant earnings for pension contributions — quietly shrinking the earnings-based ceiling on some owners' personal contribution relief (the annual allowance itself is a separate limit, unaffected).
For capital gains, the loss is starker: holiday lets no longer qualify for business asset disposal relief, rollover relief or gift holdover relief. A gain that would have been taxed at 10% a few years ago now faces residential CGT at 18% or 24% — with one live transitional exception: where the letting business ceased before April 2025 having met the old conditions, BADR can still apply to a disposal within three years of cessation. Owners who stopped letting in early 2025 and are now selling should check this window before assuming the relief is dead; it closes property by property through 2028.
What the property is now: an ordinary let with extra obligations
Income tax-wise, a holiday let is now just residential property income — same computation as a buy-to-let, same finance-cost credit, and from April 2027 the same two-point rate rise on property income (22%, 42% and 47%) that all landlords face. The old 105-nights-let and 210-nights-available tests are irrelevant for income tax.
But short-term letting keeps three features ordinary landlords never meet:
- VAT. Holiday accommodation is standard-rated — unlike residential rent, which is exempt. Cross £90,000 of taxable turnover — holiday letting counts toward it alongside any other taxable activities the owner has, on the usual rolling and forward-look tests — and VAT registration is mandatory, with 20% coming out of prices that guests compare to unregistered competitors. Owners scaling up portfolios routinely discover this threshold in arrears, which is an expensive way to learn it;
- Business rates instead of council tax — still available, on the operational tests that survived the tax regime: in England, available to let for at least 140 nights and actually let for at least 70 in the last twelve months. Qualifying often means small business rates relief and a lower bill than council tax — one of the few surviving advantages, and one requiring booking evidence to keep;
- The 5% SDLT surcharge on buying additional dwellings applies in full — and multiple dwellings relief, the old softener for portfolio purchases, was abolished separately in 2024.
The options owners are actually weighing
Three years of tax change have pushed holiday-let owners into four camps. Carry on, repriced: for well-located, well-run properties the economics still work — they are just ordinary-landlord economics now, and worth re-modelling with the 2027 rate rise in. Push toward a genuine trade: serviced accommodation with hotel-like services (daily housekeeping, meals, reception) can argue trading status with the business reliefs that carries — but HMRC resists, the bar is high and fact-specific, and adding a welcome basket does not a trade make; this route needs advice before restructuring, not after. Incorporate: a company pays 25% (or less) with full interest deductibility, at the cost of SDLT and CGT on the way in and double taxation on the way out — the same calculation every landlord runs, occasionally favourable for geared portfolios. Sell: in which case the 60-day CGT reporting clock, the 18%/24% rates and the possible BADR transitional window frame the timing.
The housekeeping that remains
Whatever the strategy: capital-allowance pools from the FHL era keep generating writing-down allowances (do not let them fall off the return); carried-forward FHL losses remain usable against future property profits; jointly-owned properties lost the old flexible profit-split with the regime — spouses now default to a 50:50 income split regardless of actual ownership shares, unless a Form 17 declaration (with evidence of genuinely unequal beneficial interests) puts the split on the real proportions; and anyone within sight of £30,000 gross letting income is in the Making Tax Digital conveyor from 2027. The cottage did not stop being a tax object when the regime died; it just changed departments.
Acumon acts for holiday-let owners across all four camps — the carry-on remodelling, trading-status assessments, incorporation numbers and disposals — through our property tax team and landlord specialists, with VAT registration handled before HMRC raises it first. If your holiday let's tax plan predates April 2025, it is describing a regime that no longer exists.