The 2025/26 tax year is the first one where furnished holiday let capital allowances no longer exist. The regime was abolished from 6 April 2025, and for many holiday let owners, the full financial impact is only now becoming clear as they file for the first time under the new rules.
Capital allowances were one of the most valuable parts of FHL status. They let owners deduct the full cost of furnishing and equipping a property against taxable income in the year of purchase, something standard residential landlords could not do. That advantage is gone. What remains is a narrower set of reliefs, a higher tax bill for most, and two further changes on the horizon: Making Tax Digital, now in force for higher-income landlords, and a property-specific income tax rate increase legislated for April 2027.
What Were Furnished Holiday Let Capital Allowances?
Capital allowances let property owners deduct the cost of certain assets from their taxable profits. Under the FHL regime, this applied to holiday lets in a way that simply did not apply to residential lets.
FHL owners could claim on plant and machinery, which in practice meant almost everything inside the property: furniture, kitchen appliances, white goods, electrical equipment, TVs, beds, sofas, fixtures. In a well-equipped holiday rental, that initial outlay runs to tens of thousands of pounds.
When you bought a qualifying asset, you could offset that capital expenditure against rental income rather than absorbing it as a personal cost. The Annual Investment Allowance (AIA) allowed 100% deduction in the year of purchase up to £1 million. Writing Down Allowances (WDA) applied to assets above that threshold or those held outside the main pool.
Standard residential landlords had none of this. They were restricted to the Replacement of Domestic Items Relief, which only covers swapping out existing items, not buying new ones, and does not apply to initial fit-outs at all.
Why FHL Status Mattered Beyond Capital Allowances
Capital allowances were significant, but they sat inside a broader package of tax advantages. Some of those reliefs interacted directly with how owners managed their properties and finances.
Business asset disposal relief (formerly entrepreneurs’ relief): On sale, FHL owners could access Capital Gains Tax at 10% rather than the standard residential rates of 18% or 24%.
Rollover and holdover relief: Capital gains could be deferred when reinvesting in another qualifying business asset. Not available for residential property.
Pension contribution relief: FHL income counted as “relevant UK earnings,” meaning profits could support larger tax-relieved pension contributions. Standard rental income does not qualify.
Loss relief: FHL losses could be carried forward against future FHL profits, which gave some flexibility in managing tax exposure across a portfolio.
All of these applied only when the property met HMRC’s qualifying conditions, and that is where many owners ran into difficulty.
The FHL Qualifying Conditions
Three thresholds had to be met each tax year:
Availability: The property must have been available for commercial letting for at least 210 days.
Actual letting: It must have been commercially let for at least 105 of those days. Days offered to friends or family at below-market rates did not count.
Pattern of occupation: The property could not have been let to the same person for more than 31 consecutive days, if those longer lets totalled more than 155 days in the year.
The 105-day threshold caught a lot of owners, particularly those who struggled with off-peak occupancy. HMRC offered two relief mechanisms: averaging elections, which allowed owners with multiple properties to pool their letting days across the portfolio, and period of grace elections, which let owners who had met the threshold in a prior year treat a short-fall year as qualifying for up to two consecutive years.
The Abolition of the FHL Regime from April 2025
The Spring Budget 2024 announced the Furnished Holiday Lettings tax regime would be abolished from 6 April 2025. The measure passed into law in the Finance (No. 2) Act 2024.
From that date, income from holiday lets is treated as ordinary property rental income.
Capital allowances: No new claims on plant and machinery are available from 6 April 2025. Former FHL properties now fall under the same rules as residential lets, which means Replacement of Domestic Items Relief only.
Existing pools: This is where owners with prior claims need to check their position. Assets that were in a capital allowance pool before 6 April 2025 can still receive Writing Down Allowances on the remaining balance. No new holiday let assets can be added to the pool from April 2025. If you claimed capital allowances on furniture or appliances bought before that date, those pools carry forward and WDA continues on the unrelieved balance. Anything purchased after 5 April 2025 falls outside the relief entirely.
CGT reliefs: Business asset disposal relief is gone for holiday lets sold after 6 April 2025. Rollover and holdover relief ceased to apply at the same date. For owners who were weighing a sale, the April 2025 cut-off was a hard deadline with real money attached.
What You Can Claim Now
The options are narrower.
Replacement of Domestic Items Relief is the main mechanism left. It covers the cost of replacing furniture, furnishings, appliances, and kitchenware, but only on a like-for-like basis. If you replace a basic washing machine with a premium model, you can only deduct the cost of the equivalent standard replacement. The extra is not claimable. More importantly, this relief only applies to replacements. Fitting out a new property, or adding a category of item for the first time, does not qualify.
Revenue expenditure is deductible in the usual way: repairs (not improvements), letting agent fees, insurance, cleaning, utilities where the landlord pays them. None of that has changed.
Finance costs: Individual landlords are restricted to a 20% basic rate tax credit on mortgage interest, rather than a full deduction against profits. This restriction has applied to residential landlords since 2021, and former FHL properties are now subject to it too.
Read more about: How to Furnish a Holiday Rental Property to Get More Bookings
What the Transition Looks Like in Practice
For owners who held FHL properties before April 2025, there was roughly a year between the Budget announcement and the abolition date. That window is closed now, but a few things still need attention.
Existing pools: If you claimed capital allowances on property assets before April 2025, those pools carry forward. WDA continues on the unrelieved balance. Make sure your accountant has the pool details documented accurately, because this is often where records slip.
Pre-April 2025 expenditure: Any qualifying expenditure made before 6 April 2025 could still be added to a capital allowance pool under the old rules. If you completed a refurbishment or refit before the cut-off and your accountant has not captured it yet, raise it now.
CGT: If you sold after 5 April 2025, Business Asset Disposal Relief was not available. The sale is subject to standard residential CGT rates: 18% for basic rate taxpayers, 24% for higher rate taxpayers. If you sold before that date and have not yet checked whether BADR was claimed correctly, it is worth reviewing.
Company structure: Some owners are exploring whether operating through a limited company changes the position. Companies are not subject to the finance cost restriction on mortgage interest and sit outside several of the individual landlord rules. Whether incorporation makes sense depends heavily on portfolio size, income level, and exit plans. It is not a straightforward call and it usually involves a CGT event on transfer, so take qualified advice before moving.
Making Tax Digital and the 2027 Tax Rate Rise
Two further changes are affecting holiday let owners, separate from the FHL abolition.
Making Tax Digital
MTD for Income Tax became mandatory from 6 April 2026 for sole traders and landlords with gross income above £50,000, based on 2024/25 tax return figures. If that applies to you, the annual self-assessment return no longer exists in its current form. Instead: digital records kept in HMRC-compatible software, quarterly income and expense updates submitted throughout the year, and a final annual declaration.
HMRC has confirmed there will be no penalties for late quarterly submissions during 2026/27 while the system beds in. Penalties under a points-based system apply from April 2027.
The threshold steps down: £30,000 from April 2027, £20,000 from April 2028. If you are currently below £50,000 but expect income to grow, the 2025/26 tax return (on which the 2027 eligibility will be assessed) is worth paying attention to.
Property income tax rates from April 2027
The government has legislated for separate income tax rates that apply only to property income from 6 April 2027:
| Rate | Current | From April 2027 |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
These apply to property income in England, Wales, and Northern Ireland. Thresholds remain frozen until 2031, so fiscal drag will push more landlords into higher bands regardless of the headline rate.
VAT
If your holiday let income exceeds £90,000 in annual turnover, you must register for VAT and charge it at 20%. Most guests do not expect to pay VAT on holiday accommodation. Absorbing the cost reduces margins; passing it on puts you above competitors who sit below the threshold.
This obligation is separate from FHL status and unchanged by the abolition. If you are close to the threshold, how you structure pricing, which booking channels you use, and the timing of stays can all affect whether and when you cross it.
Record-Keeping
HMRC can request records going back six years in a routine enquiry. For any period when your property operated as an FHL, keep:
- Letting records showing commercial bookings: confirmations, calendar data, guest names
- Receipts and invoices for all capital expenditure claimed
- Capital allowance pool details: original cost, purchase date, allowances already claimed
- Any averaging or period of grace elections made
For Replacement of Domestic Items Relief claims, retain evidence of both the original item and the replacement cost.
How Chekin Helps Protect Your Property and Manage the Guest Journey
Tax changes aside, one practical risk has got harder to absorb: guest damage. Under the old FHL rules, replacing furniture or appliances could be offset against income. That no longer applies to new purchases. A bad guest stay now costs more, on paper and in practice.
Chekin lets you collect a security deposit at online check-in: you set the amount, the funds are held until the stay ends, and released with one click if everything is fine. If you prefer not to deal with deposits at all, there is a damage protection plan that covers accidental damage, theft, and intentional damage with no deductible and no guest dispute required. You charge guests a fixed fee, keep a margin, and claims are handled without confrontation.
On the guest journey side, Chekin takes care of everything between booking confirmation and check-out: online check-in, identity verification, smart lock access for remote properties, a digital guest guide, and an AI-powered inbox that handles messages across all your channels. Everything is logged and tied to a verified guest, which also gives you a clean record of commercial arrivals if you ever need it for tax purposes.
Conclusion
Furnished holiday let capital allowances gave UK property owners a meaningful tax break for years: the ability to deduct the full cost of furnishing and equipping a property against income in the year of purchase. That break is gone. The 2025/26 tax year is the first full year under the new rules, and for most operators the numbers look worse than they did before April 2025.
Existing capital allowance pools carry forward and WDA continues on unrelieved balances, so there is still value to extract there. But no new claims are available, the CGT reliefs are gone, the finance cost restriction now applies, Making Tax Digital is in force for higher earners, and property income tax rates are rising from April 2027.
The picture is not straightforward. If you have not reviewed your tax position since the FHL abolition, now is the time. Chekin can handle the operational side so the guest management record is accurate when you do.
Frequently Asked Questions
Under the now-abolished FHL regime, owners of qualifying short-term rental properties could claim capital allowances on plant and machinery, including furniture, appliances, and fixtures, deducting those costs against taxable rental income. The Annual Investment Allowance allowed 100% deduction in the year of purchase, up to £1 million.
The Furnished Holiday Lettings regime was abolished from 6 April 2025 under the Finance (No. 2) Act 2024. No new capital allowance claims on plant and machinery for holiday let properties are available from that date.
New claims are not available for assets purchased after 5 April 2025. If you had existing capital allowance pools from expenditure before that date, Writing Down Allowances continue on the unrelieved balance.
Former FHL properties are now treated as standard residential rental properties. The main relief for furnishings and equipment is Replacement of Domestic Items Relief, which covers the cost of replacing existing items on a like-for-like basis. It does not apply to initial purchases.
A property needed to be available for commercial letting for at least 210 days per year and actually let for at least 105 of those days. Extended lettings of more than 31 days to the same person could not exceed 155 days in the tax year.
No. VAT obligations for short-term lets are separate from FHL status. If your income exceeds £90,000, you must register for VAT and charge it at 20%, regardless of the property’s FHL history.
No. Business Asset Disposal Relief at 10% was abolished alongside the FHL regime. Sales after 5 April 2025 are subject to standard residential CGT rates: 18% for basic rate taxpayers and 24% for higher rate taxpayers.
Companies avoid the finance cost restriction and operate under different capital allowances rules, which makes them attractive for some landlords. But incorporation typically triggers a CGT event on transfer and may involve refinancing. Whether it makes sense depends on portfolio size, income level, and exit plans. Take advice from a qualified accountant before doing anything.
MTD for Income Tax is mandatory from 6 April 2026 for landlords and sole traders with gross income above £50,000, assessed on 2024/25 tax return figures. It replaces the annual self-assessment return with quarterly digital submissions and a final annual declaration. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
Yes, from April 2027. The government has legislated separate property income tax rates: 22% at the basic rate (up from 20%), 42% at the higher rate (up from 40%), and 47% at the additional rate (up from 45%). These apply in England, Wales, and Northern Ireland.
