
Furnished Holiday Lets (FHLs) Tax Reforms: Key Details and Implications
2nd September, 2024
We’re writing to let you know about some important changes to the tax rules for furnished holiday lets which will take effect from April 2025.
It is worth noting up front that the changes are to income and capital gains tax, and the VAT status of Furnished Holiday Let income is not changing.
Therefore, if you receive over £90,000 of income in a twelve-month period, you need to register for VAT. The calculation should be done at the end of each month looking back over the previous 12 months.
Income Tax:
Taxable Profit
Up until 5 April 2025, mortgage interest is treated as a deduction from rental income for income tax.
From 6 April 2025, this will change for those properties with mortgages so that tax relief for interest can only be received at a rate of 20% and is a credit to your tax liability.
This means a reduction in tax relief for higher (40%) and additional rate (45%) taxpayers and it also has the impact of increasing the gross income of taxpayers meaning that those who are close to tax rate boundaries will suffer tax at higher rates with relief given at the lower rate.
This treatment has been the case with rental investment income for a few years now and, as you notice, it is possible for properties to make a cash loss but still have a tax liability.
Losses
Losses, brought forward or otherwise, from an FHL business can be offset against profits of the overall property business.
Capital Gains Tax
Until 5 April 2025, the sale of an FHL may qualify for business assets disposal relief and a tax rate of 10% on the first £1,000,000 of gains. Gains can also be rolled over into new business assets.
From 6 April 2025, neither of these is possible. The tax rate will be 24%, depending on any changes in the budget of 30 October.
Pension Contributions
Up until 5 April 2025, FHL profits count as relevant earnings for pension contributions. Pension contributions can be made up to the maximum of £3,600 or 100% of relevant earnings.
Reviewing Your FHL Holdings? Get Our Expert Support.
The above changes mean it is time to re-evaluate any FHL holdings and consider selling, passing to a relative or considering if an FHL is the best option going forward.
Please contact us to discuss your options. Let us help you make this process as smooth as possible.

Terry started life at HM Revenue and Customs before moving to Ashdens and then on to BDO and Chantrey Vellacott, the combination of which has provided Terry with a wide breadth of experience which has proved invaluable when helping a broad range of clients with their tax affairs.
Whether it involves meticulously organising a client’s tax affairs or leveraging his expertise to mitigate their tax exposure, Terry has a passion for delivering tangible results.