Tax Guide for Furnished Holiday Lets

Updated April 2025

Owning a holiday home can be a very rewarding business. Not only does it provide a comfortable place to stay for yourself, family & friends, but it can also be a great source of income.

**Please note: Autumn 2024 Budget announcement – While the specific benefits for FHLs have been removed as of April 2025, properties that qualified as FHLs in the 2024-25 tax year will still benefit from the previous rules regarding their tax return for that year.

Read on for information about the old and new tax rules to help you navigate these amendments. Click here for full GOV.UK details about the Abolition of the furnished holiday lettings tax regime.

Stone Cross Mansion Apartments, Ulverston

Got a tax question? Zeal have a free helpline for Sykes and sister brand owners, get in touch via Sykes@gozeal.co.uk and as a Sykes and brand owner you have the benefit of exclusive 10% discount on standard fees.

What is a Furnished Holiday Let?

Prior to 6th April 2025 (1st April 2025 for limited companies), a property could qualify as a Furnished Holiday Let if it met the following criteria:

• Furnished to a sufficient standard – there are no set rules on how much furniture to provide but if you supply everything you would normally expect from a self-catering property then you’ll be on the right lines
• Commercially let with the intent to make a profit
• Available to be let for at least 210 days (30 weeks) of the year – 105 of which must be commercially let to paying guests (if you use the property yourself or allow family/friends stay at a discounted rate, this does not count towards the total occupation requirements)

To be recognised as a Furnished Holiday Let (FHL) in the final year of the tax regime, you’ll need to have your property available for rental before April 6, 2025 (or April 1, 2025, for limited companies). Plus, it’s important that you meet the FHL qualifying criteria within the 12-month period following the date your property first became available for letting.

For example, if you put your property on the market for rent on March 10, 2025, you can still qualify as an FHL for the 2024/25 tax year, provided you fulfil the FHL requirements by March 9, 2026.

The key benefit of qualifying as an FHL during the 2024/25 tax year is that you’ll have the opportunity to claim capital allowances on your setup costs. You may also qualify for deductions on expenses related to buying, building, refurbishing, or converting your property into a holiday let.

**Your property will cease being a Furnished Holiday Let if it is either sold, or used for private occupation.

For more information about the requirements for a FHL, take a look at the HS253 Helpsheet.

Hawkrigg Farm, Far Sawrey Ref. 1041275

What were the tax advantages of running a Furnished Holiday Let?

Starting from April 2025, the tax benefits previously enjoyed by owners of Furnished Holiday Lets will no longer be available. Moving forward, the regulations have shifted, and the opportunity to take advantage of these perks has been removed. That said, these rules still apply to properties that were recognized as FHLs during the 2024-25 tax year, as detailed previously.

Holiday Let Tax Deductible Expenses

Capital allowances could be claimed for your Furnished Holiday Let, providing valuable tax deductions on the assets used for your holiday rental business. This is a benefit you won’t find with long-term rental properties.

You can claim capital allowances on furniture, furnishings, and equipment purchased for the property. Additionally, certain refurbishment costs—such as plumbing and electrical work—may also qualify, and in many cases, you can even claim a portion of the original purchase price of your property!

By taking advantage of capital allowances on your property purchase, you can significantly reduce the tax payable on your holiday let profits and improve your return on investment. To find out if your property qualifies for capital allowances, reach out to the team at Zeal.

Tax-advantaged pension contributions

Income generated from a FHL property was classed as ‘relevant earnings’ allowing you to make tax-advantaged pension contributions.

For more information on this, see the HS253 Helpsheet.

When you sell your property

If you sold your FHL property, you were able to claim certain Capital Gains Tax (CGT) reliefs. These were unavailable to long-term rental properties and included:

• Business Asset Disposal Relief
• Business Asset Rollover Relief
• Gift Hold-over Relief

Split profits between joint owners to maximise tax

If you co-own a Furnished Holiday Let (FHL), you had the flexibility to distribute profits among the legal owners based on your preferences for tax reasons. In contrast, with long-term rental properties, profits had to be divided according to the official ownership percentage—meaning, if you owned 50% of the property, you received 50% of the profits. For FHLs, however, you had the freedom to allocate profits as you saw fit, but they are now categorized the same way as long-term rentals.

For more information, see this Trusts, Settlements and Estates Manual.

Image credit Chay_Tee

NEW tax changes for FHLs in 2025

Starting from the 6th April 2025 (1st April 2025 for companies), the FHL tax relief regime will be abolished and the current tax benefits for individuals, companies, and trusts operating a qualifying FHL business will no longer apply. This means FHLs will be taxed in the same way as long-term residential or commercial lets.

The key changes to the furnished holiday lettings tax regime include:

• Interest on finance costs like mortgage interest will now be capped at the basic rate of Income Tax. Additionally, capital allowances for qualifying expenditures can no longer be claimed.
• Furnished Holiday Lets will continue to qualify for ‘replacement of domestic items relief’, similar to other property businesses.
• However, Capital Gains Tax reliefs, such as Business Asset Disposal Relief, Rollover Relief, and Gift/Holdover Relief, are no longer applicable.
• Income from Furnished Holiday Lets will no longer count as relevant UK earnings for determining the maximum tax relief available on personal pension contributions.
• The ‘FHL’ and ‘UK Property’ sections in tax returns will be merged moving forward.
• All UK property income and expenses will be reported collectively, with tax calculated on the overall net profit from all lets combined. However, the method for calculating holiday let profits remains unchanged.
• Lastly, the higher Capital Gains Tax rate has dropped from 28% to 24% (and reduced to 18% for basic rate taxpayers).

Find out more about the rules and legal requirements for letting a holiday property.

Paying VAT on a Furnished Holiday Let

If the turnover on your FHL exceeds the VAT threshold which is currently £90,000, you will need to become VAT registered. Currently the standard VAT rate applicable is 20%. The threshold is set at around £7,500 per month which most holiday lets are unlikely to achieve unless it’s a large house or high end, luxury property. This means you’ll most likely have to own more than one holiday let before VAT becomes something to think about.

For more GOV.UK information about VAT on Holiday accommodation

Bank Barn, Wreay Ref. 1160532

What are classed as Holiday Let Tax deductible expenses?

Allowable expenses are applicable for tax relief for qualifying Plant & Machinery (P&M) assets used in a business, e.g include furniture, furnishings, equipment, and also hot tubs for holiday lets.

Although holiday let owners won’t be able to claim capital allowances on new purchases made after April 2025, they can still benefit from the ‘Replacement of Domestic Items Relief’ for certain replacements. Domestic items eligible for this relief may include:

• Household appliances (fridges, freezers, washing machines)
• Moveable furniture (sofas, tables, bed frames)
• Furnishings (curtains, rugs, carpets)
• Kitchenware (utensils, crockery, cutlery)

However, new holiday let properties after April 2025, will no longer be able to claim capital allowances on the initial purchase of these assets, so to claim tax relief will only apply to replacements.

For more detailed information about Furnished Holiday Let Tax Guide, please click here to view our sister brand blog page with Sykes Holiday Cottages

Stamp Duty Land Tax (or equivalent)

In the UK, purchasing a second property, which is not your primary residence, could result in a Stamp Duty Land Tax surcharge. As of 31st October 2024, the surcharge will be 5% in England (up from 3%), while in Wales, it remains at 5% (referred to as Land Transaction Tax). In Scotland, the rate is higher, set at 8% (known as Land and Buildings Transaction Tax).

Read our guide to Stamp Duty for holiday lets which provides further information.

Need some more advice?

We know it can very difficult getting your head around tax for holiday lets, especially if you’re new to letting. That’s why we’ve partnered with tax experts Zeal; to make sure that you’re not missing out on potential tax savings on your holiday let property.

Looking to buy or change agencies, contact our local team here in the Lakes, phone us on 015394 88855, or alternatively, complete the form below to request contact from our team, including a copy of our FREE Owner Guide.

Disclaimer

The advice above is given by Zeal. Lakelovers can’t advise you on, and isn’t responsible for, tax matters in relation to your holiday let and the above should not be taken as such, rather as a prompt of the issues involved for further consideration. As always, please read the relevant laws, regulations and guidance and seek advice from external experts where you require it. Lakelovers hopes that by pointing you in the direction of an expert in the field, it’s starting you off on the right foot, and you can read into this matter further and seek your own advice from Zeal, or your chosen advisor, as and when you feel it’s needed. We cannot make any representations or warranties of any kind as to the competency, qualification, fitness for purpose, accuracy, reliability, suitability, or availability of Zeal’s offers, products or services. If you choose to enter into any arrangement for the supply of goods or services of a supplier listed in this newsletter or links, you do so entirely at your own risk. Any such arrangement is between you and the supplier. We are not a party to it. We shall not be liable for any loss or damage arising under or in connection with any such arrangement or any action or decisions you take or do not take as a result of reading the above or any loss suffered as a result.