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Tax for Furnished Holiday Lets explained

Furnished Holiday Lets (FHLs) offer a unique opportunity for property owners to generate income through short-term rentals. However, the tax implications for FHLs differ significantly from those for other rental properties. This blog will guide you through the key tax considerations for FHLs, including recent NEW changes to the tax regime from April 2025.

What were the requirements for a Furnished Holiday Let?

Artist’s Cottage, Richmond Ref. 1163443

Previous to April 2025, a Furnished Holiday Let was classed as a property that is rented out on a short-term basis and meets specific criteria. To qualify as an FHL, the property must:

  • Be located in the UK or the European Economic Area (EEA).
  • Be commercially let with the intention of making a profit.
  • Be furnished with sufficient furniture for guests to use.
  • Meet occupancy conditions, including being available for letting at least 210 days a year and actually let for at least 105 days

For more information on FHL requirements, view the HS253 Helpsheet.

Yorkshire Coastal Cottages experienced property consultants and local team will be able to advise you on how best to achieve this.

Tax Benefits for FHLs

Historically, FHLs have enjoyed several tax advantages over other rental properties:

  1. Income Tax: Rental income from FHLs is subject to Income Tax, but the rules for allowable expenses and capital allowances are more generous.
  2. Capital Gains Tax (CGT): FHLs are treated as business assets, which can provide access to certain reliefs, such as Entrepreneurs’ Relief.
  3. Pension Contributions: Income from FHLs can be included as relevant UK earnings for pension contribution purposes.
  4. VAT: FHLs fall within the scope of VAT, and relevant short-term lets must comply with VAT registration rules

Your property will no longer be a FHL if the:

  • property is sold
  • property is used for private occupation
  • letting condition isn’t met even with the averaging and period of grace elections

If your property does not qualify as an FHL or stops being a qualifying FHL, the special tax treatment will no longer apply. You will need to work out any balancing allowance or balancing charge for capital allowances, read Helpsheet 252 Capital allowances and balancing charges)

Note: While the specific benefits for FHLs have been removed as of April 2025, properties that qualified as FHLs in the 2024-25 tax year will still benefit from the above rules regarding their tax return for that year.

 

Changes in 2025

Starting from April 2025, significant changes will be implemented in the tax treatment of Furnished Holiday Lets (FHLs). Here are the key updates:

Abolition of FHL Tax Regime

The special tax status for FHLs will be abolished, meaning that FHLs will be taxed similarly to other residential or commercial rental properties. This change aims to promote fairness by removing the tax advantages that FHLs previously enjoyed over other property businesses. Read more about the Abolition of the furnished holiday lettings tax regime – GOV.UK

Specific Changes

  1. Finance Cost Restriction: Loan interest will be restricted to the basic rate of Income Tax, similar to other residential property landlords
  2. Capital Allowances: The ability to claim capital allowances on new expenditures will be removed. Instead, relief will be available for the replacement of domestic items
  3. Capital Gains Tax Reliefs: Access to reliefs from taxes on chargeable gains for trading business assets will be withdrawn
  4. Pension Contributions: Income from FHLs will no longer be included as relevant UK earnings when calculating maximum pension relief

Impact

These changes will align the tax rules for FHLs with those for other property businesses, removing the beneficial treatment that FHLs previously received.

Compliance and Reporting

With the abolition of the FHL tax regime, landlords will no longer need to calculate profits for FHLs separately. Reporting will be simplified, aligning with the rules for ordinary property income. By maintaining thorough and organized records, you can ensure compliance with tax regulations and make informed financial decisions. If you need more detailed advice, consulting with a tax professional or accountant can be very helpful.

Sykes Cottages & Local Brands partnership with Tax Experts Zeal

We know it can very difficult getting your head around tax for holiday lets, especially if you’re new to letting. That’s why we’ve partnered with chartered tax advisors Zeal; to make sure that you’re not missing out on potential tax savings on your holiday let property and we are pleased that all our Yorkshire Coastal Cottages owners can benefit from an exclusive discount.

Would you like more detailed information on any specific aspect of FHL taxation? contact Zeal today on 01633 499771 or email sykesfamily@gozeal.co.uk

Recommendations:

  • Seek Professional Advice: Given the complexity and recent changes, it’s advisable to consult with a tax professional to understand how these changes specifically impact your situation.
  • Stay Updated: Regularly check for updates from reliable sources like HMRC and professional tax advisors to stay informed about any further changes.

If you require advice regarding Stamp Duty read our helpful blog on Stamp Duty for Holiday Lets

If you have any questions or need further clarification, feel free to reach out!

Interested in letting your property with a local experienced company? The team at Yorkshire Coastal Cottages in Whitby are there to help and guide our owners in making sure you are up to date with current legislation.

You can phone our local Whitby team on 01947 820949 for more detail on short breaks, or for any further advice on holiday letting. Alternatively, complete the short form on our website and a member of our team will be in touch soon.

Disclaimer

The advice above is given by Zeal. Yorkshire Coastal Cottages can’t advise you on, and isn’t responsible for, tax matters in relation to your holiday let and the above should not be taken as such, rather as a prompt of the issues involved for further consideration. As always, please read the relevant laws, regulations and guidance and seek advice from external experts where you require it. Yorkshire Coastal Cottages hopes that by pointing you in the direction of an expert in the field, it’s starting you off on the right foot, and you can read into this matter further and seek your own advice from Zeal, or your chosen advisor, as and when you feel it’s needed. We cannot make any representations or warranties of any kind as to the competency, qualification, fitness for purpose, accuracy, reliability, suitability, or availability of Zeal’s offers, products or services. If you choose to enter into any arrangement for the supply of goods or services of a supplier listed in this newsletter or links, you do so entirely at your own risk. Any such arrangement is between you and the supplier. We are not a party to it. We shall not be liable for any loss or damage arising under or in connection with any such arrangement or any action or decisions you take or do not take as a result of reading the above or any loss suffered as a result.