What Was the FHL Tax Regime?

From 6 April 2025, the UK government will abolish the Furnished Holiday Let (FHL) tax regime, wiping out the very benefits that have made short-term holiday lets more attractive than standard buy-to-lets House of Commons LibraryGOV.UK. Yorkshire hosts face a sudden jump in costs and paperwork—and without swift action, many will see net income shrink dramatically.

Introduced in 1984 to recognise that short-term holiday letting resembled trading rather than long-term rental, the FHL rules gave owners:

• Trader-style income tax treatment, so profits counted as trading income rather than property profit House of Commons Library.

• Full capital allowances on furniture, fixtures and equipment—letting you deduct the cost of chattels from rental income GOV.UK.

• Mortgage interest relief as a property expense at your marginal rate (40–45%) rather than the basic-rate credit BDO UK.

• Access to CGT reliefs (roll-over and hold-over) on disposals of a qualifying FHL business BDO UK.

• Relevant UK earnings status, so FHL profits boosted your pension-contribution allowance Williamson & Croft.

Combined, these features typically delivered 4–8 percent higher net yields compared to traditional buy-to-lets—and made upgrading cottages or city flats far more affordable.

Key Benefits That Are Disappearing

Benefit	Status After 6 Apr 2025	Source
Capital Allowances on Assets	Withdrawn for new expenditure; only replacement items relief remains GOV.UK	Gov.uk, Commons Briefing
Mortgage Interest Relief	Capped at 20% basic-rate tax credit BDO UK	BDO Insights
Trader-Style Income Treatment	Reclassified as standard property income House of Commons Library	Commons Briefing
CGT Reliefs (Roll-over, Hold-over)	Denied for connected-person transfers post-6 Mar 2024 BDO UK	BDO Insights
Pension-Contribution Status	Profits no longer count towards relevant UK earnings Williamson & Croft	WilliamsonCroft Blog

What Exactly Changes on 6 April 2025

1. Abolition of the FHL RegimeFrom the 2025/26 tax year, “holiday-let” classification vanishes—your property simply becomes part of your standard UK property business House of Commons LibraryGOV.UK.

2. Finance Cost RestrictionsInstead of deducting mortgage interest at your marginal rate, you’ll get a 20 percent tax credit on interest paid—costing higher-rate taxpayers up to 20 percent more tax on the same interest bill BDO UK.

3. Capital Allowances OverhaulThe annual investment allowance for plant & machinery is gone—only replacement domestic items relief will apply (e.g. swapping a broken fridge, not buying a new suite of sofas) GOV.UK.

4. CGT Relief WithdrawalRoll-over and hold-over reliefs cease for connected-party transfers where contracts exchange after 6 March 2024 and complete post-5 April 2025 BDO UK.

5. Pension-Relief ImpactFHL profits no longer count as relevant UK earnings, potentially capping how much you can contribute to your pension each year Williamson & Croft.

6. Harmonisation with Long-Let RulesAll holiday lets will join the same tax framework as standard residential lettings, meaning no special occupancy or availability elections after abolition GOV.UK.

   
   
   
   

Why Yorkshire Hosts Must Act Now

• Immediate Tax Hit: A landlord earning £30,000 p.a. in rent could pay £4,000 more in income tax under the new rules The Guardian.

• Cashflow Crunch: Capital allowances on new furnishings disappear—so kitchen refits and cottage makeovers lose a valuable tax offset.

• Refinancing Risks: Lenders pricing deals against taxable income will see lower net profits, potentially affecting loan -to-value and interest rates.

• Pension Gap: If you relied on FHL profits to bolster pension contributions, you may need to inject personal funds or restructure ownership.

• Compliance Chaos: Anti-forestalling rules on disposals create a tight window—contracts exchanged after 6 March 2024 that complete after 5 April 2025 face relief denial BDO UK.

Six-Point Action Plan for FHL Landlords

1. Front-Load Capital Spending: Execute any major refurbishments or asset purchases before 5 April 2025 to secure existing allowances.

2. Review Occupancy for 2024/25: If you miss 105 letting days or 210 availability days, consider the averaging or grace-period elections now GOV.UK.

3. Reevaluate Financing: Factor the 20 percent credit cap into your cashflow models and loan applications.

4. Consider Let-Type Switch: Switching to longer-term lets could be more tax-efficient post-abolition—run the numbers.

5. Update Your Tax Strategy: Engage your accountant to reforecast 2025/26 using the new rules—and file any necessary elections by the deadlines.

6. Forecast Your Income: Use a specialist short-let manager’s tools to project net yields under both old and new systems.

   
   
   
   

How Northern Retreats Can Smooth the Transition

At Northern Retreats, we combine local Yorkshire expertise with full-service management to protect your bottom line through the tax shake-up:

• Capital-Spending Scheduling: We’ll plan & execute your upgrades to maximise 2024/25 allowances.

• Income Forecasting: Our proprietary models show you exact net returns under the new regime.

• Tax-Compliance Liaison: We coordinate with your tax advisors to file elections and meet every deadline.

• End-to-End Operations: From listing to linen, maintenance to guest checks, we keep your occupancy high and costs predictable—so you can focus on strategy, not surprises.

Don’t get caught out by April’s overhaul. Click here for your FREE, no-obligation income forecast and let Northern Retreats guide your Yorkshire property into a profitable, compliant future.