TL;DR
The Furnished Holiday Let tax regime was abolished from April 2025, removing the tax advantages that made holiday lets attractive to investors. Holiday let mortgages remain available but lenders assess rental income differently from BTL mortgages. Before buying a holiday let, understand the new tax position, the stricter mortgage criteria and the planning and licensing requirements that apply in many areas.
Last reviewed: June 2026 | Sources: HMRC, GOV.UK, FCA
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Property Before You Buy a Holiday Let FHL tax regime: abolished April 2025Mortgage LTV: typically 70-75% maxPlanning permission: may require change of use in some councilsLicensing: required in several councils and WalesRegulator: HMRC / FCA / local authority |
The abolition of the Furnished Holiday Let tax regime
The Furnished Holiday Let tax regime, which provided significant tax advantages to owners of qualifying holiday properties, was abolished with effect from 6 April 2025. Under the old regime, FHL owners could deduct mortgage interest costs in full against rental income, claim capital allowances on furnishings and equipment, and benefit from business asset disposal relief on sale. These advantages made FHL properties significantly more tax-efficient than standard buy-to-let investments.
From April 2025, holiday let income is taxed in the same way as standard residential rental income. Mortgage interest is restricted to basic rate relief only (20 percent) rather than being deductible in full. Capital allowances on furnishings are replaced by the replacement of domestic items relief, which operates differently. Business asset disposal relief no longer applies to holiday let disposals. The abolition significantly reduces the after-tax return from holiday let properties and should be central to any investment decision.
How holiday let mortgages work differently from BTL
Holiday let mortgages are a distinct product from standard buy-to-let mortgages. Fewer lenders offer them, the criteria are stricter and the rates are typically higher. Lenders assess rental income based on projected holiday letting income rather than a standard assured shorthold tenancy rent, which creates greater uncertainty in the affordability assessment. Most lenders require the property to be in a recognised holiday destination with strong evidence of rental demand.
Maximum LTV on holiday let mortgages is typically 70 to 75 percent, compared to 75 to 85 percent on standard BTL products. Some lenders require the property to be used for personal holidays for a minimum number of weeks per year, which limits commercial letting income. The mortgage must be declared as a holiday let from the outset — switching a property from a standard BTL mortgage to holiday letting without lender consent can trigger a mortgage breach.
Planning permission and licensing requirements
Local authorities are increasingly imposing planning restrictions on short-term holiday lets in areas where housing supply for residents is under pressure. From January 2024, a new use class C5 was created in England for short-term lets — properties let for 90 or more days per year to guests for holiday purposes. In some areas, a change of use from C3 (dwelling house) to C5 requires planning permission. Check with the local planning authority before purchasing a property specifically for holiday letting.
Licensing requirements apply in Wales under the Welsh Government's mandatory licensing scheme for all holiday let properties. Several English councils have introduced or are consulting on local licensing schemes. Operating a holiday let without required planning consent or a licence can result in enforcement action, fines and a requirement to cease letting.
Business rates versus council tax for holiday lets
Properties that were previously qualifying FHLs could be registered for business rates rather than council tax, which in many cases resulted in a lower liability through small business rates relief. Following the FHL abolition, the criteria for business rates registration have changed. A property must now be available to let for at least 140 days per year and actually let for at least 70 days to be assessed for business rates rather than council tax. Check the current position with your local authority before assuming a business rates registration remains valid.
What to assess before buying a holiday let in 2026
Model the post-April 2025 tax position explicitly before purchasing. Calculate rental income net of all costs including mortgage interest restricted to basic rate relief, agency fees, cleaning, maintenance, insurance and void periods. Compare the net return against alternative investments. Obtain a specialist holiday let mortgage agreement in principle before offering on a property. Check planning requirements with the local authority. Verify whether licensing applies. Factor in the seasonality of the local market — many UK holiday destinations generate 80 percent of income between May and September.
FHL Tax Regime: Before and After April 2025
| Tax Treatment | Before April 2025 (FHL) | From April 2025 |
|---|---|---|
| Mortgage interest relief | Full deduction against income | Restricted to 20% basic rate credit |
| Capital allowances | Available on furniture/equipment | Replacement of domestic items relief only |
| CGT on sale | Business Asset Disposal Relief (10%) | Standard CGT rates (18%/24%) |
| Pension contributions | FHL profit counted as earnings | Not counted as relevant earnings |
| Averaging and overlap relief | Available | No longer available |
| Overall tax efficiency | Significantly favourable vs BTL | Broadly equivalent to standard BTL |
Source: HMRC. Changes effective 6 April 2025.
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Disclaimer This article is for information only and does not constitute regulated financial advice. Kael Tripton Ltd is an independent editorial publisher and is not regulated by the FCA. |
Frequently asked questions
Can I still get a holiday let mortgage after the FHL abolition?
Yes. The abolition of the FHL tax regime does not affect the availability of holiday let mortgages. Lenders continue to offer specialist holiday let mortgage products. The change affects the tax treatment of income and gains, not the availability of finance.
Do I need planning permission to turn my property into a holiday let?
It depends on the local authority and how frequently you let the property. In England, properties let for 90 or more days per year may fall into the new C5 use class and may require planning permission for change of use in some areas. Check with your local planning authority before letting commercially.
What is the difference between a holiday let mortgage and a BTL mortgage?
Holiday let mortgages allow the property to be let on a short-term basis to holiday guests, which standard BTL mortgages do not permit. Holiday let mortgage rates are typically higher, maximum LTV is lower, and fewer lenders offer them. The rental income assessment is based on projected holiday occupancy rather than an AST rent.
How are holiday let profits taxed from April 2025?
Holiday let profits are taxed as property income in the same way as standard BTL rental income. Mortgage interest is subject to the 20 percent basic rate tax credit rather than full deduction. Capital gains on sale are subject to standard CGT rates of 18 percent (basic rate) and 24 percent (higher rate) rather than the former 10 percent BADR rate.
Do I pay council tax or business rates on a holiday let?
Properties available to let for at least 140 days per year and actually let for at least 70 days may be assessed for business rates rather than council tax. Small business rates relief may reduce or eliminate the business rates liability. Check current criteria with your local authority as these have changed following the FHL abolition.
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Sources HMRC: Furnished Holiday Let Abolition |
