The furnished holiday let (FHL) market has been a sound investment option for UK property owners for years. It has offered significant tax advantages compared to traditional buy to let properties. However, changes to the tax rules for FHLs are on the horizon. New rules are scheduled to come into effect in April 2025. They are designed to tighten compliance. This is to reduce misuse of the system, and ensure FHL properties operate as genuine holiday rentals.
Looking ahead to the upcoming reforms to the FHL tax regime we explore what they mean for property owners. We also have practical tips to help you prepare for the new regulations.
What is the furnished holiday let (FHL) tax regime?
Furnished holiday lets are a special type of rental property meeting specific criteria. They benefit from unique tax advantages, making them an attractive option. To qualify as an FHL, a property must:
- Be located in the UK or European Economic Area (EEA).
- Include everything you need for a comfy short-term stay.
- Be available for letting at least 210 days per year, and actually let at least 105 days.
These criteria distinguish FHLs from standard rental properties. This allows them to access significant tax benefits.
- Income from FHLs is treated as business income, allowing property owners to make pension contributions from their income. FHL owners can also claim tax relief on furniture, appliances, and other capital investments.
- Qualifying FHLs may be eligible for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and rollover relief. These could potentially reduce Capital Gains Tax (CGT) liabilities when selling the property. Plus, FHLs often qualify for business rates, which may include small business rate relief, rather than standard council tax.
However, with the new rules coming into play in April 2025, these benefits may not be easy to secure without meeting new guidance.
What are the holiday home tax changes coming in April 2025?
The UK government’s 2025 reforms aim to ensure the FHL tax regime benefits genuine holiday rental businesses. This is to distinguish them from properties used primarily for personal or long-term residential purposes. As a result, property owners should be aware of the following changes:
1. Mortgage interest relief adjustments
Right now, landlords of FHL properties can fully deduct mortgage interest from their rental income before calculating their tax burden. However, from April 2025, tax relief for FHLs will be 20% for higher and additional rate taxpayers. This change effectively reduces the tax relief from the current rates of 40% and 45%, respectively.
2. Stricter evidence requirements for letting thresholds
The minimum thresholds of 210 days available for letting and 105 days of actual bookings remain unchanged. However, property owners will have to provide more detailed evidence to prove compliance. This includes maintaining thorough records of booking histories and receipts. Cancellations and refunds will need to be evidenced. As will advertising efforts (such as listings on holiday letting platforms).
This change is intended to close loopholes. Previously, some owners claimed the FHL tax benefits without meeting the actual letting requirements.
3. Focus on marketing and commercial viability
Owners will need to demonstrate their property is actively marketed as a holiday let. It must be genuinely available to holidaymakers. This means listing the property on recognised platforms (such as Airbnb). You’ll need to show you’re running advertising campaigns, and ensuring pricing aligns with commercial standards.
4. Changes to EEA property eligibility
As of April 2025, only properties located in the UK will qualify for FHL tax benefits. Currently properties in the European Economic Area (EEA) can benefit from the regime. Therefore, owners of EEA holiday lets will no longer be eligible for UK FHL tax reliefs. They will need to consider alternative tax arrangements.
5. Greater scrutiny by local authorities
Local councils will have enhanced powers, allowing them to check compliance with FHL criteria. Properties failing to meet these requirements risk being reclassified as residential lettings. This would lead to the loss of tax advantages. Owners may also face penalties for non-compliance.
6. Digital tax reporting requirements
In line with the government’s Making Tax Digital (MTD) initiative, FHL owners will need to submit digital tax returns. This aims to streamline the tax reporting process and improve compliance. The exact rollout date for FHLs under MTD isn’t confirmed, but property owners should start preparing for this transition.
How will the changes to furnished holiday let tax rules impact property owners?
The 2025 reforms will affect how FHL owners manage their properties and tax obligations. One of the main impacts will be increased administrative requirements. Owners will have to maintain detailed records of bookings and cancellations. Marketing efforts too will need to be evidenced. Automated tools or property management software may also be necessary to stay compliant.
Properties failing to meet the stricter letting criteria risk being reclassified as standard buy to lets. This could mean losing access to capital allowances. It might mean higher income tax bills, as rental income would no longer qualify as business income. Property owners would also be ineligible for CGT reliefs.
Owners of FHL properties in the European Economic Area (EEA) will lose access to UK tax reliefs. These individuals may face increased tax liabilities. They may also need to reassess whether it’s worth keeping overseas holiday lets.
Finally, the enhanced scrutiny from local authorities could lead to more frequent audits and tighter penalties for non-compliance.
Practical steps to prepare for the changes
If you’re an FHL owner looking to navigate the upcoming changes successfully, there are proactive steps you can take to ensure compliance and protect your tax advantages.
Firstly, review your property’s recent letting record to ensure it meets the 210-day availability and 105-day occupancy thresholds. If you fall short, consider adjusting your marketing strategy to boost bookings.
Property management software could help you automate bookings, track cancellations, and manage advertising efforts. Doing so should make it easier to demonstrate compliance. It’s also worth speaking with a tax advisor who understands the FHL regime. They can then help you identify risks, optimise your tax position, and ensure you meet the new requirements.
If you own properties in the EEA, you can explore alternative tax strategies or consider reinvesting in UK-based holiday lets.
Whatever you do, it’s worth learning about the Making Tax Digital requirements. You might wish to invest in compatible software to simplify the transition to digital tax reporting. You could also meet with local authorities to stay informed about local regulations, and show your commitment to compliance.
Changing with the times
The 2025 changes to the furnished holiday let tax regime are a significant shift for UK property owners. While these reforms aim to ensure fairness and transparency, they also impose stricter requirements on owners. These range from record-keeping to showing commercial viability.
However, with careful planning and professional advice, you can adapt to the new rules and continue to benefit from owning a furnished holiday let.
If you’re thinking about taking the leap to holiday let ownership, our team of holiday let mortgage experts is here to help.
