What are the tax implications of converting property to a furnished holiday let?
Answered 11 March 2026
Tax Implications of Converting Property to a Furnished Holiday Let
⚠️ Critical Note on Timing: The furnished holiday lettings (FHL) regime has been abolished with effect from 6 April 2025 for Income Tax/CGT and 1 April 2025 for Corporation Tax. The information below describes the rules that applied up to those dates, plus transitional consequences.
What the Law Says
The FHL regime was contained in ITTOIA 2005, ss.322–328B (for individuals) and CTA 2009, ss.264–269A (for companies). These provisions have been repealed by Finance Act 2025.
Qualifying conditions (for tax years 2011-12 to 2024-25): A property had to meet all three occupancy conditions:
| Condition | Requirement |
|---|---|
| Availability | Available for letting at least 140 days per year |
| Letting | Actually let commercially for at least 70 days per year |
| Pattern of occupation | Long-term lettings (>31 days) must not exceed 155 days in total |
The property also had to be let on a commercial basis with a view to profit and be sufficiently furnished for normal occupation.
HMRC Guidance / Practice
1. Income Tax Treatment
FHL properties meeting the qualifying tests were charged under the property income rules, but with trading principles applied in the same way as other lettings.
2. Key Tax Advantages (up to 2024-25)
The major advantages of FHL status over ordinary residential lettings were:
- 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 (such as vans and tools). No capital allowances were available for the cost of the property itself or the land.
- CGT reliefs: Access to CGT reliefs for traders, such as rollover relief and Business Asset Disposal Relief (BADR).
- Finance cost restriction exemption: The mortgage interest restriction (PIM2054) did not apply to loans referable to the FHL part of the business.
- Pension contributions: FHL profits counted as net relevant earnings for pension contribution purposes.
Note: 'Replacement of domestic items relief' was not available for FHLs.
3. Loss Relief (2011-12 to 2024-25)
From 2011-12 onwards, FHL losses could only be carried forward against future profits of the same FHL business — sideways relief against general income was no longer available.
4. Capital Allowances: Cash Basis vs GAAP
When calculating FHL profits under GAAP, capital allowances could be claimed for capital expenditure on plant and machinery. Under the cash basis, the full amount of capital expenditure could be deducted in the tax year it was paid.
5. Period of Grace
Where a property genuinely failed to meet the letting condition (70 days), a period of grace election could be made, provided the availability and pattern of occupation conditions were met and the owner could demonstrate genuine intention to let (e.g. equivalent marketing). A maximum of two consecutive period of grace elections was permitted.
Abolition and Transitional Rules (from 6 April 2025)
The FHL rules ceased to apply from 6 April 2025 (IT/CGT) and 1 April 2025 (CT). Key consequences:
- CGT: FHL properties are no longer treated as a trade, so BADR and rollover relief are no longer available on disposals after those dates.
- Capital allowances transitional rule: Unrelieved qualifying expenditure in the FHL main pool is transferred to the UK property business main pool for the following year. For example, if a landlord had £50,000 in the FHL pool and £12,000 in the property business pool, the combined pool for 2025-26 becomes £62,000.
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
A customer may genuinely intend to meet the letting condition, but was unable to. If this happens, they may be able to make a period of grace election that allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions were met. To make an election, the customer must be able to show that they had a genuine intention to let the property in the year. For example, where the property was marketed to the same or a greater level than in successful years, or wh
The rules for furnished holiday lettings (see PIM4100 onwards) apply when using the cash basis as when using GAAP. However, the special rules for capital expenditure differ between GAAP and cash basis. When calculating profits of a furnished holiday let using GAAP, capital allowances can be claimed for capital expenditure on plant and machinery (e.g. furniture). When the cash basis is used, the full amount of capital expenditure can be deducted from the profits of the tax year when the expenditu
IT rental business losses can be set against general income only to the extent that they are attributable to: certain capital allowances (see PIM4222), certain agricultural expenses (see PIM4224). Until the 2010-11 tax year, relief against general income could be claimed to the extent the loss was due to furnished holiday lettings. This is not available for tax years 2011-12 onwards, see PIM4130. Losses of a furnished holiday lettings business may now only be carried forward to use against futur
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
Net relevant earnings are Earnings from a non-pensionable employment Self-employed profits as a sole trader Share of profits from a partnership Any profit from furnished holiday lettings
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
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