Introduction: The End of a Lucrative Tax Loophole
For years, thousands of UK landlords have benefited from the generous tax advantages of Furnished Holiday Lets (FHLs) — a category that allowed short-term rental properties to be treated more like businesses than conventional buy-to-lets. From Capital Allowances to Pension Contributions and Business Asset Disposal Relief, the regime enabled landlords to reduce taxable income and protect their profits.
But this era is coming to an end. In the Spring Budget 2024, the UK Government announced the abolition of FHL tax benefits from April 2025. The clock is now ticking. Those who do not restructure their property, sell at the right time, or plan ahead may lose tens of thousands in tax advantages.
This article outlines what is changing, the financial impact, and most importantly — a 6-month exit strategy to transition smartly before the deadline.
2. What Exactly Is a Furnished Holiday Let?
HMRC defines a property as a Furnished Holiday Let only if it meets these three conditions:
| Rule | Requirement |
|---|---|
| Availability Condition | Property must be available for letting 210 days per year |
| Letting Condition | Must be actually let for 105 days per year |
| Short-Term Condition | No single guest can stay more than 31 days at a time |
These properties have traditionally qualified for special tax treatment — a status that ends on 6 April 2025.
3. What Tax Benefits Are Being Removed?
FHL landlords currently enjoy a number of lucrative perks, all of which end in April 2025.
| Tax Benefit | What It Means for Landlords | Status from April 2025 |
|---|---|---|
| Capital Allowances | Deduct furniture, appliances, fixtures | Abolished |
| Business Asset Disposal Relief (BADR) | 10% CGT rate when selling | No longer applicable |
| Mortgage Interest Relief | Fully deductible as a business cost | Replaced by 20% tax credit like buy-to-lets |
| Pension Contributions | FHL earnings count as business income | Will no longer apply |
| Gift Holdover Relief | Can transfer property without immediate CGT | Removed |
From April 2025, FHLs will be treated just like any other residential rental property.
4. What Does This Mean Financially?
Here is how the financial landscape changes for landlords:
Before April 2025 (FHL Status Active)
-
Can deduct full mortgage interest
-
Claim capital allowances on furnishings
-
Pay 10% CGT using BADR when selling
-
Offset pre-trading losses
-
Gift properties within family tax efficiently
After April 2025 (FHL Status Removed)
-
Only a 20% mortgage interest credit allowed (Section 24 rules)
-
No capital allowances — only wear & tear allowance
-
CGT at 18% or 24% on residential property for basic/higher-rate taxpayers
-
Transferring or gifting property becomes more expensive due to CGT and Stamp Duty
For many owners, this could mean losing £5,000–£15,000 per year in tax advantages — or £30,000+ if selling without careful planning.
5. Timeline: What to Do in the Next 6 Months
| Month | Action |
|---|---|
| Month 1 | Review profitability and mortgage costs under post-April rules |
| Month 2 | Obtain property valuation for CGT planning |
| Month 3 | Decide: Sell, convert to standard rental, or move into personal residence |
| Month 4 | If selling — list property and prepare for BADR claim |
| Month 5 | If converting to buy-to-let — adjust bookings and contracts |
| Month 6 | Finalise accounts, claim last capital allowances, submit election forms |
6. Exit Strategy #1: Sell Before April 2025 and Claim 10% CGT
Selling before the deadline allows landlords to access Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), meaning:
-
Pay 10% CGT instead of 18% or 24%
-
Applies to up to £1 million of lifetime gains
-
Must meet FHL conditions for at least two years prior to sale
This is one of the most powerful exit routes — especially for owners planning to retire or downsize.
7. Exit Strategy #2: Transfer to Spouse or LLP Before the Deadline
Couples can rearrange ownership to reduce future CGT and income tax.
Benefits of transferring before April:
-
Utilise two CGT allowances instead of one
-
Split income across tax bands
-
Avoid Stamp Duty if no mortgage transferred
But timing is essential — transfers must happen while FHL rules are still active to apply holdover relief.
8. Exit Strategy #3: Convert FHL into a Standard Buy-to-Let
Some owners may prefer to keep the property but switch to long-term tenants.
What changes:
-
Income taxed under Section 24 (20% credit only)
-
No capital allowances — only replacement relief
-
Higher insurance and different tenancy agreements required
This may be suitable for those who want passive income without seasonal bookings.
9. Exit Strategy #4: Move In and Claim Private Residence Relief (PRR)
If an owner lives in the property as their main residence, even temporarily, they may qualify for Private Residence Relief—dramatically reducing CGT.
How it works:
-
Live in the property as main residence for a qualifying period
-
Last 9 months of ownership automatically exempt
-
Partial relief applies for periods of actual residence
This strategy is particularly useful for second homes located in desirable holiday areas.
10. Final Opportunity to Claim Capital Allowances
Landlords should ensure they:
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Claim full allowances on furniture, heating systems, appliances before April
-
Maintain receipts and invoices
-
Consider bringing forward refurbishment expenses to maximise final claims
After abolition, no further claims will be possible.
11. Seek Professional Tax Advice
Because the abolition of FHL status affects income tax, CGT, inheritance planning, and business structuring, many property owners are choosing to consult experts such as My Tax Accountant to ensure a compliant and profitable exit.
12. Conclusion
The end of Furnished Holiday Let tax perks in April 2025 marks a turning point for thousands of landlords. The reliefs that once made short-term letting highly profitable will disappear—replaced by the stricter rules applied to standard residential property.
Those who act within the next six months can still access low CGT rates, transfer ownership strategically, or restructure income. Those who delay could face higher taxes, reduced profitability, and fewer exit options.
The message is clear: plan now, or pay later.