FHL regime gone: what UK Airbnb hosts owe differently from April 2025

I spent most of last February on the phone to my accountant. Two hours, a lot of bad coffee, and the slow realisation that the tax setup I'd carefully built my whole short-term rental model around had been cancelled with about six months' notice.

The FHL — Furnished Holiday Lettings — regime was abolished on 6 April 2025. If you own Airbnbs in the UK and you haven't had a conversation with your accountant yet, this is your reminder. The changes are significant, and some of them catch people off guard.

What the FHL regime actually did

For most UK landlords, the furnished holiday letting rules were worth having. They treated your short-term rental income as trading income rather than investment income — which unlocked a stack of tax advantages that residential buy-to-let landlords don't get.

To qualify, you had to hit three tests each tax year: the property needed to be available to let commercially for at least 210 days, actually let for at least 105 of those days, and not be occupied by the same guest for more than 31 consecutive days. Fiddly rules, honestly, and if you dipped below 105 days one year you had to use averaging elections or period-of-grace elections to hold on to your status. But the advantages for those who qualified were real.

The main ones:

• Finance costs: You could deduct mortgage interest in full as a business expense. Residential landlords can only claim basic rate tax relief on finance costs now — FHL hosts were exempt from that restriction.
• Capital allowances: You could claim capital allowances on furniture, equipment, and fixtures. Residential landlords get replacement domestic items relief instead, which is more limited.
• CGT reliefs: FHL properties could access Business Asset Disposal Relief (formerly Entrepreneurs' Relief), rollover relief, and holdover relief — all normally reserved for trading businesses. That meant paying 10% CGT on qualifying disposals rather than the residential rate.
• Pension contributions: FHL income counted as relevant UK earnings for pension contribution purposes, so you could use it to justify larger pension contributions and get full tax relief on them.

What's gone from April 2025

All of it, basically. From 6 April 2025, properties that previously qualified as FHL are treated the same as any other residential letting. The rules that applied to 2024-25 (letting commenced during that tax year can be tested over a 12-month period that extends past April 2025) faded out with that transitional year.

Mortgage interest? You're now in the same position as every other residential landlord — basic rate tax credit only, regardless of what rate you pay income tax at. If you're a higher-rate taxpayer with a mortgage, this hurts. The effect is that higher-rate taxpayers now pay tax on the gross rental income and get back 20p for every £1 of finance cost. The relief available effectively halves for 40% taxpayers.

Capital allowances on new expenditure? Gone for post-April 2025 spending. You can still claim replacement domestic items relief on furniture and equipment you replace — but you can't claim the first-year capital allowances on new items the way FHL landlords could.

CGT: If you sell a property that was previously FHL, Business Asset Disposal Relief is no longer available. Gains on residential property now go through at 18% for basic rate taxpayers and 24% for higher rate taxpayers (rates that apply from 6 April 2026, having shifted from the previous 18%/28% structure). There's no rollover relief, no holdover relief. You pay CGT as a residential landlord, full stop.

Pension: FHL profits no longer count as relevant UK earnings. If your pension contribution strategy relied on FHL income to justify high contributions, you need to revisit that with an IFA. This one genuinely blindsided some hosts I know.

Married couples and joint ownership

There's a secondary change that's easy to miss. Under the old FHL rules, married couples and civil partners who jointly owned a holiday let could split the income in whatever proportion they liked — useful for shifting income to a lower-rate taxpayer. From April 2025, the default is a 50/50 split, like any other jointly owned rental property. You can elect otherwise if you own the property in different proportions, but you now need to formally declare that.

What this means in practice

The honest answer is it depends on your specific position. Three things worth checking with your accountant before you file your 2024-25 return:

First, your mortgage interest treatment. If you have a buy-to-let mortgage on any of your STRs, run the numbers under the basic-rate-relief-only regime. The difference between deducting interest in full and getting a basic rate credit can be substantial, especially if you've got significant finance costs against a property that generates moderate profit.

Second, what you were planning to buy or fit out. Capital allowances could be worth claiming on expenditure that was committed before April 2025. Anything you're buying now doesn't qualify under the old rules.

Third, your exit strategy. If you were holding an FHL property partly because you expected to sell it under Business Asset Disposal Relief at 10%, that maths has changed. Not necessarily a reason to sell in a hurry — but worth factoring into your longer-term plan.

The honest version

I'm not going to pretend this doesn't matter. I ran three of my properties under the FHL rules, and the combination of full finance cost deduction, capital allowances on equipment, and the pension contribution eligibility was worth real money. Losing all three at once, in the same tax year, is a material change to how profitable those properties are on paper.

What I've done: had a proper review with my accountant, restructured how I think about the finance on two properties, and adjusted my pricing slightly to account for the reduced tax efficiency. It's not catastrophic. But it required attention, and the hosts I've seen struggle are the ones who were still operating under the assumption that the old rules applied.

The HMRC Property Income Manual was updated at PIM4160 onwards. If you like reading tax guidance in your spare time, it's there. If not, just book the call. It's a two-hour conversation worth having.