Furnish Holiday Lets Tax Changes from 6th April 2025
HMRC announced on 29th July 2024 that many tax regime changes would affect Furnished Holiday Lets from 6th April 2025.
The recent tax changes mark a significant shift in how income and gains from these properties are treated. Starting from April 2025, the specific treatment and separate reporting requirements for FHLs will be removed, meaning that FHL income will now be integrated into a person’s overall UK or overseas property business.
This aligns the tax rules for FHLs with those of other property businesses, effectively eliminating the previous advantages that FHL owners enjoyed. Key changes include the application of finance cost restrictions, the removal of beneficial capital allowances, and the withdrawal of access to certain reliefs on chargeable gains, which previously offered more favourable treatment to FHLs compared to other property landlords.
The policy objective behind these changes is to promote fairness by levelling the playing field between FHLs and other property businesses. The existing FHL tax benefits, such as exemptions from finance cost restrictions and access to more favourable capital allowances, will be phased out, and FHL income will no longer qualify as relevant UK earnings for pension relief calculations.
Transitional rules will allow some continuation of existing benefits, such as writing down allowances on existing capital allowances pools, but overall, the changes will simplify the landscape for property income by treating all property income under a single set of rules.
This measure is projected to increase government revenue while having a negligible macroeconomic impact and minimal disruption to the affected businesses.
What are a Furnished Holiday Lets (FHL)?
A Furnished Holiday Let (FHL) is where people stay for a few nights or weeks. A residential buy-to-let is where someone stays in a house for a minimum of six months under an Assured Shorthold Tenancy agreement known as an AST.
FHLs usually are charged per night stay. This differs from a buy-to-let, where you charge a monthly tenant. Someone staying in an FHL would not be expected to pay the utility bills. This is in contrast to a single buy-to-let. Landlords can make more money from FHLs than from single-let property investments.
Many landlords use AirBnB, Booking.com, and other platforms to get bookings for their FHLs. Each is a simple platform where you list your property, and guests book and pay for their stay. Reviewing the tips for AirBnB to get the most out of your investment might be helpful.
There are many tax relief benefits to letting FHLs for many UK landlords.
HMRC FHL rules
Post 5th April 2025
There will be no differences in tax treatment between FHL properties and standard buy-to-let properties. The Conversavtaive Party (UK government) scrapped the tax benefits of owning FHL on 25 July 2024.
Before 5th April 2025
Some occupancy conditions rules must be met to qualify as a furnished Holiday Let , as shown on HMRC help sheet 253. Please find below a summary of the key points:
– Your FHL must be available for letting as FHL of 31 days or less per letting for at least 210 days per year.
You cannot count the days you stay in the FHL since HM Revenue and Customs (HMRC) don’t consider the FHL available for letting while you stay there.
– You must let the FHL commercially to the public for at least 105 days in the year. Don’t count days when you let the FHL to friends or relatives at zero or reduced rates, as this isn’t a commercial let. Don’t count longer-term lets of more than 31 days unless the 31 days are exceeded because something unforeseen happens.
– You must not let the FHL on lets of longer than 31 days for more than 155 days during the year. These are short term lets for tax purposes.
– The furniture and furnishings must be provided with the FHL.
– The FHL must be let commercially with a view to the realisation of profits.
Failure to adhere to the rules will result in the property being considered a traditional buy-to-let. This could mean dire results for landlords, as they will lose out on FHL capital allowances and pay more money to HMRC due to the Section 24 mortgage interest relief cap.
Please work with your property accountant to work through the complex HMRC rules.
Stamp duty
You will pay stamp duty on furnished holiday letting properties and AirBnB listings. SDLT and the 3% SDLT surcharge will apply as HMRC states they are a dwelling.
HMRC explains where cases involving bed and breakfast establishments or guest houses will be treated on their merits. However, a bed and breakfast (B&B) establishment with bathing facilities, telephone lines etc., installed in each room (available all year round) would be considered a non-residential property. This is in line with s.116(3)(f), which states that “a hotel or inn or similar establishment” is not used as a dwelling.
The above also means that guest houses and B&Bs will not be subject to the 3% SDLT surcharge, another tax benefit of an FHL that provides additional services.
Your buy-to-let property would be deemed mixed-use if your holiday let, guest house and AirBnB listing had an office where you keep paperwork. This means that the non-residential rates of SDLT would apply, and the 3% SDLT surcharge would not be applicable.
UK landlords looking to invest in FHLs will need to consider stamp duty. The SDLT rate applied to most transactions will be set at the residential-use stamp duty.
| Scaled | Charge |
| Up to £250,000 | 2% |
| From £250,001 to £925,000 | 5% |
| From £925,001 to £1.5m | 10% |
| Over £1.5m | 12% |
There are ways to minimise stamp duty, and you are advised to work with our accountants to minimise tax wherever possible. Please note that the stamp duty paid is a capital cost. This will help you reduce your capital gains tax liability when the FHL is sold.
FHLs and Section 24 mortgage interest relief cap
After 5th April 2025
There will be no differences in treatment between FHL properties and standard buy-to-let properties for mortgage interest payments. This means you will only benefit from a 20% tax reducer on mortgage interest, not the full relief.
Before 5th April 2025
We wrote an article about the Section 24 mortgage interest relief cap and explored how it may be mitigated.
You can offset all the mortgage interest if you meet the HS253 conditions. Unlike buy to lets, where the amount of interest you can claim is now 0%.
Not only can you make more money using Airbnb, but you can also save tax. It sounds like a no-brainer, but there are many things you need to consider, such as the additional work involved. It is a balance between making money and spending more time in your rental business.
Investing in FHL is significantly more advantageous than buying-to-let properties because of the Section 24 mortgage interest relief cap.
Capital allowances
After 5th April 2025
There will be no differences in tax treatment between FHL properties and standard buy-to-let properties for capital allowances. You are allowed the written down allowances of prior capital allowances claims made before 5th April 2025.
This means that you would not have lost out on capital allowances made before this date and will continue to benefit from this relief.
However, you should not pay for capital allowances reports post 5th April 2025 as they will not be valid.
Before 5th April 2025
We have written an extensive page on capital allowances.
FHL and Value Added Tax (VAT)
Once you reach an income level of £90,000 on your FHLs listings, you must register for VAT. This brings your first issue of the more significant complexities of running your rental business.
Who pays your VAT bill? It is a good question. If you need to charge an extra 20%, you could start to lose the competitive edge. This is especially the case if your clients cannot claim back VAT. The alternative is to absorb the 20% VAT charge. This means that you will not lose clients but will lose profit margin.
What are you to do? It would help to determine what you can afford to absorb the VAT bill. For example, you may charge £100 per night for your FHL, but the cost of running it is £70 if you absorb the total rate of 20% VAT to keep the price at £100. The money you will receive will be reduced to £83.33 after VAT.
This now gives you a nightly profit of £13.33 rather than the previous £30. This may not be sufficient, so you may decide to increase the price to the client to £110, including VAT. This means the money in your pocket of £91.67 is reduced from the original £100. This provides you with an improved profit compared to you attempting to absorb the VAT payment.
There will always be a compromise regarding what VAT you absorb and what VAT you pass on to your clients on your AirBnB listings.
FAQ
FHL offers certain advantages, especially when it comes to relief on mortgage interest and capital allowances. They can also yield higher rental income during peak tourist seasons.
The FHL system is distinct from other rental properties. It provides specific reliefs, but in return, there are criteria that the property must meet, like being available for and actually rented out for a certain number of days each year.
It's wise to consult with an advisor familiar with tax to ensure you're meeting all requirements and taking advantage of available benefits.
FHLs typically require more hands-on management due to shorter rental periods and higher turnover. However, they can generate higher weekly rental income than standard holiday lettings, especially during peak seasons.
Consider enhancing your property's amenities, marketing effectively to target audiences, and pricing competitively based on demand and season.