Holiday Let Tax After the FHL Abolition: A 2025/26 Guide for Yorkshire Owners

For decades, furnished holiday lets enjoyed a set of tax advantages that ordinary rental properties did not. That ended on 6 April 2025, when the Furnished Holiday Lettings (FHL) regime was abolished. The 2025/26 tax year is the first full year owners are feeling the effect.

If you let a property short-term in Yorkshire, here is what changed, what it means for your margins, and where you can still claim.

This is general information, not tax advice. Speak to your accountant about your own position.

What changed on 6 April 2025

Before the change, a qualifying holiday let was treated more like a trading business than a rental. That unlocked several reliefs. From 6 April 2025 (1 April 2025 for companies), holiday lets are treated the same as any other residential rental property. Here is the before and after.

Area	Before (FHL regime)	Now (from April 2025)
Mortgage interest	Fully deductible against income	Restricted to a basic-rate 20% tax credit
Capital allowances	Available on furniture, fixtures and fittings	No longer available on new expenditure
Capital gains reliefs	Business Asset Disposal Relief and rollover relief available	Taxed as a standard residential property
Pension contributions	Profits counted as relevant earnings	No longer count toward pension relief
Splitting profit between spouses	Could be allocated flexibly	Defaults to ownership shares, or 50:50 for spouses unless a Form 17 is filed

The margin squeeze, in plain numbers

The change owners feel most is mortgage interest. Under the old rules you deducted the full interest cost before calculating tax. Now you only get a 20% credit, which hits higher-rate taxpayers hardest.

A simplified example. Say a property earns £30,000 a year with £10,000 of mortgage interest, owned by a higher-rate (40%) taxpayer:

• Before: interest was deducted in full, so tax was calculated on a lower profit figure.

• Now: the £10,000 interest no longer reduces taxable profit in the same way. You get a 20% credit worth £2,000, but you are taxed on the higher profit, leaving a materially larger bill.

The exact figures depend on your circumstances, and your accountant will model it properly. The direction of travel is the point: if you hold the property personally and have a mortgage, your net position has tightened.

What you can still claim

It is not all removed. Two things are worth knowing:

• Replacement of Domestic Items Relief. You can still claim when you replace movable furniture, furnishings, appliances and kitchenware, such as beds, sofas, curtains, carpets, fridges and crockery. This partly replaces the old capital allowances on furnishings.

• Running costs. The everyday costs of letting, such as utilities, cleaning, consumables, repairs, insurance and management fees, are deductible as before.

So the picture is: worse treatment of finance costs and capital, but your ongoing operational costs, including professional management, remain deductible.

Why revenue optimisation matters more now

Here is the strategic takeaway. When the tax rules were generous, a slightly underperforming property still delivered a comfortable return. With margins tighter, the performance of the property does more of the work.

Every extra point of occupancy and every extra pound on the average nightly rate now matters more, because you keep less of what you earn after tax and you cannot lean on the old reliefs to soften a weak year. This is the opposite of a reason to give up on holiday letting. Done well, short-term letting still comfortably outperforms a standard tenancy in most of Yorkshire. But "done well" now carries more weight.

That is where focus shifts: from tax structuring, which is your accountant's domain, to squeezing the most revenue out of the asset, which is ours. We cover the levers in our guide on why more Yorkshire listings does not mean more bookings.

A note for couples who own jointly

One quieter change catches people out. Married couples and civil partners who own a property jointly used to be able to allocate profits flexibly, often steering income toward the lower earner. From April 2025 the default reverts to ownership shares, and for spouses that means a 50:50 split unless you have filed a Form 17 with HMRC reflecting an unequal beneficial interest. If your old arrangement relied on flexible allocation, raise it with your accountant, because the rules and deadlines are strict.

The bottom line

The FHL abolition did not kill holiday letting. It removed the cushion. The owners who thrive from here are the ones who treat the property as a business to be run tightly, with strong occupancy, smart pricing and clean, deductible operating costs.

If you would like to see how much more your property could be earning to offset the tighter tax position, book a 15-minute call and we will run the numbers on your specific listing.