Holiday let mortgages in the UK after FHL: what changed for hosts from April 2025

I'll be honest: when the government announced the abolition of the Furnished Holiday Lettings tax regime in the March 2024 budget, I read the headlines, thought 'that's a shame,' and moved on. I didn't properly work through the implications until about October 2024, when I sat down with my accountant for our year-end review and she walked me through what April 2025 would actually mean for my rental income calculations.

It was not a short conversation.

The FHL regime has been gone since 6 April 2025 for Income Tax and Capital Gains Tax purposes. If you're operating through a company, it went on 1 April 2025 for Corporation Tax. What follows is what changed for me personally — a private individual with properties on buy-to-let style mortgages, run as a sole trader. I'm not an accountant. None of this is tax advice. Please talk to your own accountant, because the specifics depend heavily on your situation. But here's what the changes meant in practice for me, and what I've done about them.

The mortgage interest piece — the one that hurt most

Under the old FHL rules, mortgage interest and finance costs were fully deductible against FHL income. This was different from standard residential rentals, where Section 24 restrictions have been phasing out full mortgage interest deductions since 2017, replacing them with a basic rate tax credit.

From April 2025, ex-FHL properties are now treated as standard UK property lettings for income tax purposes. That means mortgage interest deductions are now restricted to a basic rate tax credit — same as standard buy-to-let. If you're a higher-rate taxpayer (which, if your FHL was generating a decent income, you likely are), this is meaningful. The relief on your mortgage interest drops from your marginal rate to 20%.

For my Edinburgh flat, which has a mortgage balance of around £180,000 at roughly 5.4% (I remortgaged in late 2023 — poor timing), the annual mortgage interest is around £9,700. Under FHL, I was deducting that against income taxed at 40%. From April 2025, I'm getting a basic rate credit of 20% on that £9,700 — about £1,940. Before, my tax benefit was roughly £3,880. That's around £1,940 of additional tax per year on one property, just from this change.

Multiply that across multiple mortgaged properties and you get a significant shift in after-tax income. My accountant's estimate for my full portfolio was an increase in my tax bill of around £4,500–£5,200 per year, depending on how the year's income plays out. That's a real number that changes how I think about pricing and occupancy targets.

Capital allowances: gone

FHL properties previously qualified for capital allowances on furniture, white goods, and equipment — the things your guests interact with daily. You could claim the cost of a new washing machine, new sofas, new kitchen kit against your FHL income as a capital allowance. Standard residential lets don't get this treatment.

From April 2025, that's gone. Instead, you get the 'replacement of domestic items relief,' which allows you to claim the cost of replacing — not initial purchase of — domestic items, broadly similar to how standard buy-to-let works. So if you're replacing a sofa you already claimed on, you can claim the replacement cost. If you're fitting out a new property, you can't claim the initial furnishing costs as you could under FHL.

The practical impact of this for me was most significant at the Lake District cottage, which I was planning to refurnish in spring 2025. I'd been timing a larger refurbishment partly to take advantage of the FHL capital allowances window — and then the window closed. I still did the refurbishment (the furniture needed replacing regardless), but the tax treatment of those costs is now different.

CGT: the reliefs that are gone

This one hasn't hit me yet, because I haven't sold any of my properties since April 2025. But it's worth understanding if you're holding properties with significant gains and are considering a sale.

Under FHL, your property was treated as a business asset for CGT purposes, which gave you access to Business Asset Disposal Relief (formerly Entrepreneurs' Relief) — a 10% CGT rate on gains up to a lifetime limit. It also gave you Business Asset Rollover Relief, which let you defer a CGT liability if you reinvested proceeds into a new qualifying asset.

Both of these are now gone for ex-FHL properties. You're back to standard CGT rates for residential property — which as of the 2025/26 tax year are 18% for basic rate taxpayers and 24% for higher rate taxpayers, after the relevant changes to residential property CGT rates. If you had a significant unrealised gain in a FHL property and were planning to sell, the CGT treatment is now materially worse.

My accountant and I talked through the implications for the Brighton flat, which I've owned for seven years and which has appreciated substantially. We're not planning to sell, but if we were, the CGT calculation would look quite different now.

Pension relief — a less-discussed change

FHL profits counted as 'relevant UK earnings' for pension contribution purposes. This meant you could make pension contributions based on your FHL income and receive the associated tax relief — which was useful for hosts who were using STR income to boost their pension, particularly if they had few other 'earned' income sources.

From April 2025, FHL income is property income, not trading income. It no longer counts as relevant UK earnings for pension purposes. If you've been using FHL profits to justify larger pension contributions, this is worth checking with a financial adviser, because the rules have changed in a way that might affect your allowable contributions.

What I've actually changed

First and most practically: I've raised nightly rates across my properties by an average of about 8% since late 2024. Some of this is general market adjustment; part of it is explicitly accounting for the higher tax bill. I modelled what I needed to maintain after-tax income at the same level, and the rate rise covered most of the gap.

Second, I had a longer conversation with my accountant about property ownership structure — whether holding through a limited company makes sense given the new treatment. The honest answer is: it might, for new acquisitions, depending on your circumstances. For existing properties with mortgages, moving them into a company structure has its own stamp duty and CGT implications that make it a complicated calculation. I haven't done it. But it's something I'm actively considering for any future acquisition.

Third, I've got more granular about tracking and claiming replacement of domestic items relief, since that's now the primary route for claiming furnishing costs. I keep better records of what I'm replacing and what the original item cost — partly because the rules are slightly different from what I was used to under FHL.

The practical bottom line

The FHL regime was genuinely advantageous — most notably the full mortgage interest deduction and the CGT reliefs. Its removal makes STR hosting less tax-efficient than it was. That doesn't mean the business is unviable; plenty of standard buy-to-let landlords have been operating under the same rules for years. But if you built your STR financial model around FHL tax treatment, the model needs updating.

The change I think most hosts are underestimating is the mortgage interest one. It's quiet, it's technical, and it doesn't feel dramatic — but at higher-rate tax and with significant mortgages, it adds up to real money per year. Talk to your accountant. And if your accountant hasn't raised this with you, raise it yourself.