How do furnished holiday lettings work for tax?
Answered 11 March 2026
This is an important question that requires a clear answer. The sources reveal that the FHL regime has been abolished from April 2025. Let me provide a comprehensive answer covering both the historic rules and the current position.
⚠️ Important: The FHL Regime Has Been Abolished
The furnished holiday lettings (FHL) special tax rules ceased to apply from 6 April 2025 for Income Tax/CGT, and 1 April 2025 for Corporation Tax, following their repeal by Finance Act 2025, Schedule 14. From those dates, former FHL properties are treated as ordinary property businesses.
What the law says
The legislative framework for FHL was contained in ITTOIA 2005, ss.322–328B (for individuals and partnerships) and CTA 2009, ss.264–269A (for companies). Section 241 TCGA 1992 previously provided that FHL businesses were treated as a trade for CGT purposes.
HMRC guidance / practice (rules applicable up to 5 April 2025)
1. Qualifying Tests
A letting qualified as an FHL only if the property was furnished and met all three occupancy conditions:
| Condition | Requirement |
|---|---|
| Availability condition | Available for letting for at least 140 days in the year |
| Letting condition | Actually let commercially for at least 70 days in the year |
| Pattern of occupation condition | Longer-term lets (over 31 continuous days) must not exceed 155 days in total |
The letting must also be on a commercial basis with a view to profit. Days when the owner stayed in the property, or when it was let to friends/relatives at nil or reduced rates, did not count.
2. Tax Advantages of FHL Status
FHL properties were charged under the property income rules, but with significant advantages over ordinary lettings:
- Capital allowances: Entitlement to plant and machinery capital allowances on furniture, furnishings, etc. in the let property, as well as on plant and machinery used outside the property (e.g. vans and tools)
- CGT reliefs: Access to trader CGT reliefs such as rollover relief and Business Asset Disposal Relief (BADR)
- Finance cost restriction exemption: The mortgage interest restriction (limiting relief to basic rate) did not apply to FHL loans
- Loss relief: FHL losses could be set against general income or carried forward, similar to trading losses
3. What Was NOT Available
Replacement of domestic items relief was not available for FHL properties.
4. Separate Qualifying Activities
UK and EEA FHL businesses were treated as separate qualifying activities from each other and from ordinary property businesses for capital allowances purposes.
5. Post-April 2025: Transitional Rules
Following abolition, former FHL properties are treated as part of the owner's ordinary UK (or overseas) property business. Unrelieved capital allowances pool balances from the FHL business are transferred to the ordinary property business pool. The CGT trade reliefs (including BADR and rollover relief) no longer apply from 6 April 2025.
Summary: The FHL regime provided significant tax advantages (capital allowances, CGT trade reliefs, no finance cost restriction) to qualifying short-term holiday lets. However, the entire regime was abolished from April 2025 by Finance Act 2025. Former FHL properties are now taxed as ordinary rental properties, with transitional rules for capital allowances pools.
Citation sources
ITTOIA/S323-326 Qualifying Tests for IT taxpayers from tax years 2005-06 to 2010-11 Summary To qualify as a FHL a property must: be let on a commercial basis with a view to realisation of profits be furnished - there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture pass the 3 occupancy conditions Occupancy conditions Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions: Pattern of occupation condition A
For chargeable periods beginning before 1 April for Corporation Tax purposes or 6 April 2025 for Income Tax purposes, UK and EEA furnished holiday lettings businesses were separate qualifying activities for PMAs. There is guidance on the definition of furnished holiday lettings business in the Property Income Manual starting at PIM4100. Where the same person carried on more than one of the four categories of property business (an ordinary UK property business, an ordinary overseas property busin
Part 2 Income tax, corporation tax and capital gains tax Miscellaneous Furnished holiday lettings 52 Schedule 14 contains provisions about furnished holiday lettings.
The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains. Income from furnished lettings is rarely trading income, even when the landlord works full time running the rental business. It is only treated as a trade when the landlord remains in occupation of the property and provides services substantially beyond those normally provid
Properties that meet the qualifying tests for furnished holiday lettings are charged under the property income rules. Trading principles apply to furnished holiday lettings in just the same way as they apply to other lettings. Hence the explanations given in the rest of this manual about the way receipts and expenses are dealt with apply equally to furnished holiday lettings. But furnished holiday lettings have some tax advantages over other lettings, these are set out in PIM4140. The major adva
The special treatment of furnished holiday lettings (FHL) for capital gains purposes no longer applies from 6 April 2025 and there are rules to deal with the consequences for the reliefs see -CG73505 - Furnished holiday lettings: consequences of abolition - HMRC internal manual - GOV.UK
Bob owns two properties in the Lake District. Bob draws up his accounts to 5 April each year. In the 2024/25 tax year: Property A is let to a tenant on a long-term basis for residential purposes; and Property B is used for the purposes of a UK furnished holiday lettings business. Bob is carrying on two separate qualifying activities. Property A is being used for a UK property business. Property B is being used for a UK furnished holiday lettings business. At the end of the 2024/25 tax year, the
o be set first against any other profits of their rental business in the same tax year; with any balance remaining carried forward against the first available profits. Their furnished holiday lettings loss may consist, wholly or partly, of plant and machinery capital allowances. Do not use ICTA88/S384 (6) or ITA07/S75 to attempt to exclude the capital allowances element of a loss from sideways relief. These provisions are omitted from the property loss relief rules by: ICTA88/S503 (3) for years
Business Asset Disposal Relief may be available where the business was the commercial letting of furnished holiday accommodation in the UK (ITTOIA05/S322+) which was treated by virtue of section 241 as a trade for certain capital gains purposes or commercial letting of furnished holiday accommodation within the EEA (, section 241A. Furnished holiday lettings are no longer treated as a trade from 6 April 2025 (1 April 2025 for Corporation Tax purposes). The consequences of the abolition for BADR