Big changes are coming for those who own furnished holiday lets in the UK. Starting in April 2025, the way these properties are taxed will shift, aligning more closely with long-term residential and commercial lets. Recently our very own Jane Wilkinson (Owner, New Forest Escapes) had the pleasure of hosting a webinar with Holiday Let Tax specialist Matt Jeffery (Founder & Tax Partner, Zeal Tax) to discuss these changes and how property owners can adapt.
On this page, we have compiled the key clips from the session to give you quick, actionable insights. These highlights are perfect for catching up on the essentials. If you’d like to dive deeper, you can watch the full webinar recording at the bottom of this page.
“The furnished holiday tax regime will be abolished from April 2025. The legislation is still currently draft, but we are expecting it to become part of the Finance Act 2025 and will then be in force from the 5th of April 2025 for individuals. If you own your property through a limited company, those rules apply from the 1st of April 2025.
So what does this mean? The current tax year, 2024/25, will be the last in which the furnished holiday let tax regime applies. From April 2025, your short-term lets or holiday lets will be taxed in the same way as long-term residential and commercial lets.
For those familiar with their tax returns, the property section is currently split into two parts: the top half for declaring furnished holiday let income and the bottom half for income from all other properties. From April 2025, all rental income and expenses will be pooled together, and tax will be applied to the net profits.
For those considering entering the holiday letting market, to qualify as an FHL in the final tax year (2024/25), you need to start letting before April 6, 2024. That means making your property available for rent before that date. If you do so, you will have 12 months to ensure you meet the letting day criteria for qualification. Doing this can provide advantages, particularly regarding capital allowances.”
Key Points
// Special tax reliefs such as Business Asset Disposal Relief and Rollover Relief will be withdrawn.
// Property owners need to act before April 2025 to benefit from current tax advantages.
// After April 2025, gains on holiday lets will be taxed similarly to other residential properties.
“Capital Gains Tax (CGT) is another major area impacted by the changes. Currently, FHLs benefit from several reliefs, such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which allows owners to pay a flat 10% CGT rate rather than the standard rates of 18% or 24%. This relief will be withdrawn from April 2025.
There is also Rollover Relief, which enables property owners to reinvest proceeds from the sale of an FHL into another qualifying asset while deferring CGT. This will also be abolished from April 2025.
HMRC has clarified that if you cease letting before April 6, 2025, you will still qualify for Business Asset Disposal Relief under transitional rules. However, the tax rate on sales will rise—from 10% to 14% in April 2025, and to 18% in April 2026. If you sell after these dates, the standard CGT rates of 18% and 24% will apply.
Previously, property owners could also ‘gift’ an FHL to family members while deferring the CGT liability. This option, known as Holdover Relief, will no longer be available. Owners who wish to explore tax-efficient ways to sell or transfer their properties should act before April 2025.”
Key Points
// Owners can consider incorporating their property into a limited company to avoid certain tax restrictions.
// Restructuring ownership, such as using a declaration of trust, may provide tax efficiencies.
// Reviewing capital allowances before April 2025 can help maximize tax relief.
“There are several strategies available to mitigate the impact of the tax changes. One option is incorporating your property into a limited company, as corporate entities are not subject to the same mortgage interest restrictions. From April 2025, individual owners will only receive basic rate tax relief on mortgage interest, whereas limited companies can still fully deduct interest costs.
Another approach is restructuring ownership. Currently, joint owners of FHLs can distribute profits in the most tax-efficient way, regardless of ownership percentage. After April 2025, joint owners will be required to split profits according to legal ownership percentages unless a declaration of trust is in place. A declaration of trust allows for an alternative profit split, such as 99% to one owner and 1% to another, which may reduce the overall tax burden.
Additionally, owners should review capital allowances before April 2025. Many holiday let owners have not fully claimed allowances on embedded fixtures such as heating systems, electrical wiring, and kitchens. These allowances provide significant tax relief and can still be claimed before the regime ends.”
Key Points
// Business rates rules remain unchanged, allowing properties meeting letting criteria to avoid council tax.
// VAT on holiday lets remains separate from the FHL tax regime changes.
// Owners should ensure compliance with VAT and business rate eligibility.
“The changes to the furnished holiday let tax regime do not impact VAT or business rates. The criteria for business rates remain the same—your property must be available to let for at least 140 days per year (252 days in Wales) and actually let for at least 70 days. If you meet these conditions, you can apply to pay business rates instead of council tax.
Most holiday lets will qualify for small business rates relief, which means owners will not have to pay business rates or council tax. This remains an important financial advantage for eligible properties.
Regarding VAT, holiday lets will still be subject to VAT if total revenue exceeds the VAT registration threshold (£90,000 as of 2024). VAT considerations remain separate from the FHL tax changes, so owners should ensure they remain compliant with VAT and business rates eligibility requirements.”
Key Points
“Currently, joint owners of FHLs have flexibility in allocating profits, which allows for tax efficiency. After April 2025, profits must be split according to ownership shares unless a formal declaration of trust is in place. Owners should review their ownership structures now to determine whether adjustments would be beneficial.
Another significant change affects pension contributions. Under current rules, FHL income qualifies as ‘relevant earnings’ for pension tax relief. This means that profits from FHLs can be used to make tax-deductible pension contributions. From April 2025, this will no longer be allowed. If you rely on FHL income to fund pension contributions, you should consider making contributions before the deadline.”
Key Points
// Capital allowances provide tax relief for certain property costs, including embedded fixtures.
// Owners who haven’t claimed these allowances should do so before the 2025 deadline.
// Some tax reliefs can still be applied retroactively, offering potential refunds.
“Capital allowances allow property owners to claim tax relief on embedded fixtures, such as heating systems, electrical wiring, and kitchen fittings. These allowances significantly reduce taxable profits, but from April 2025, FHLs will no longer qualify for capital allowances.
Many owners are unaware that they can still claim capital allowances on past purchases, renovations, or refurbishments. Even if you bought your property years ago, you may have unclaimed allowances that could provide tax relief now.
A key point in the transitional rules is that if allowances are claimed before April 2025, they will still be available to offset against rental income after the FHL regime ends. If you haven’t reviewed your capital allowances yet, now is the time to do so.”
Key Points
// A limited company structure can help mitigate tax increases, especially for those with high mortgage costs.
// It offers inheritance tax planning benefits, but additional costs and administrative burdens exist.
// Incorporation must be carefully planned to avoid unnecessary tax liabilities, including stamp duty and capital gains tax.
“Given these tax changes, many property owners are considering transferring their holiday lets to a limited company. There are several potential advantages:
However, incorporation has disadvantages as well. Running a limited company involves additional costs, including higher accounting fees and administrative burdens. There is also the potential for stamp duty and CGT liabilities when transferring a property to a company.
If you’re considering incorporation, it’s important to seek professional advice to ensure that it is the right move for your financial situation.”
