Holiday let investors are navigating one of the most demanding periods in recent property tax history. The abolition of the Furnished Holiday Let (FHL) regime from April 2025 removed a set of valuable tax advantages, and Making Tax Digital (MTD) for Income Tax, arriving in April 2026, introduces a new layer of digital reporting and record-keeping obligations. For holiday let landlords, these two changes do not sit neatly apart. Your ability to defend historic FHL tax positions and stay compliant under MTD depends on the same thing: accurate, well-organised, and digitally maintained records.
This guide explains the FHL tax rules that still matter, what MTD requires of holiday let investors, and the practical steps you need to take to protect your tax position going forward.
KEY TAKEAWAYS
FHL qualification criteria (210/105 day rules) still apply to tax years 2024/25 and earlier and must be evidenced for historic Self Assessment filings.
From 6 April 2025, all holiday lets that would previously have qualified as FHLs is treated as standard property income, and the finance cost restriction in Section 24 of Finance (No. 2) Act 2015 applies.
Capital allowances on furniture and equipment are no longer available. Replacement of Domestic Items Relief applies instead, but only on like-for-like replacements.
Under MTD, there is no separate FHL category. All residential property, including holiday lets, is reported under a single property business from 6 April 2026.
Existing unrelieved capital allowance pools established before April 2025 continue to attract Writing Down Allowances and must be carried forward correctly.
Couples holding holiday lets as joint tenants default to a 50:50 income split post-abolition. A Form 17 declaration, with specific timing requirements, may be needed to protect a different arrangement.
What Makes a Holiday Let Qualify? The Rules You Must Still Meet
Although the FHL regime is abolished for current and future tax periods from April 2025, the qualification criteria remain directly relevant to your historic tax position. HMRC can still enquire into returns for 2024/25 and earlier years and will expect you to demonstrate that properties claimed as FHLs met the statutory conditions.
be in the UK or European Economic Area |
be available for letting FHL for at least 210 days in the tax year |
actually be let commercially as FHL for at least 105 days in the tax year |
not be occupied by the same person for periods of more than 31 consecutive days, and the total of such longer term lettings must not exceed 155 days in the tax year |
be furnished so that normal occupation is possible |
be let with a genuine commercial intention to make a profit |
Where properties were borderline in 2024/25, two elections were available under the FHL rules: an averaging election, which allowed landlords with more than one FHL to average letting days across properties to meet the 105 day test, and a period of grace election, which allowed FHL status to be maintained for up to two consecutive years where the letting condition was not met due to genuine exceptional circumstances.
If you relied on either election, it is essential to retain evidence in your records, including booking calendars, platform and agent statements, and correspondence explaining why thresholds were not met in a particular year.
210
Days available for letting per year
105
Days actually commercially let
155
Max days of long-term occupation (31+ day stays)
How the April 2025 Changes Affect Your Tax Position?
The FHL tax regime ceased to apply from 6 April 2025. From these dates, income from a weekly holiday cottage is taxed in the same way as income from a standard residential letting, subject to the property business rules and the Section 24 finance cost restriction.
The Section 24 Impact on Finance Costs:
Pre-April 2025 — FHL Rules
Rental income | £20,000 |
Mortgage interest (full deduction) | −£8,000 |
Taxable profit | £12,000 |
Post-April 2025 — Section 24
Rental income | £20,000 |
Finance costs (no deduction) | - |
Basic rate tax credit (20% × £8,000) | −£1,600 |
Taxable property income | £20,000 |
For a higher rate taxpayer this can significantly increase the effective tax cost compared with full interest deductibility.
Capital allowances on furniture, fixtures and equipment are no longer available for new expenditure incurred on or after 6 April 2025 under the FHL rules. Instead, Replacement of Domestic Items Relief applies under the standard residential property rules, allowing a deduction for the cost of replacing items such as sofas, beds and white goods, subject to:
no deduction for the original cost of furnishing the property
no deduction for improvements, so only the amount equivalent to a like for like replacement is allowable if you upgrade the item
Capital Gains Tax reliefs available under the FHL regime, including Business Asset Disposal Relief and rollover relief, no longer apply. Gains on the disposal of holiday let properties are now subject to standard CGT rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
FHL profits also no longer count as relevant UK earnings for pension contribution purposes, removing a benefit that allowed landlords to make larger tax-relieved pension contributions.
Post abolition, any losses arising from the property are treated as property business losses and can be carried forward against future profits of the same property business, rather than being available against general income. This narrower relief makes accurate categorisation and evidence of allowable expenses more important.
Before and After: Key Changes at a Glance
Pre-April 2025 — FHL Benefits | Post-April 2025 — Restrictions |
|---|---|
|
|
Historic FHL Records and Traditional Self Assessment: What Still Applies
For the 2024/25 tax year and all prior years, FHL income is still reported through traditional Self Assessment, outside of MTD. HMRC will apply FHL-specific rules to these historic periods, meaning your qualification evidence, capital allowance claims, and loss positions must be fully documented and defensible.
TWO TRANSITIONAL PROTECTIONS
Unrelieved balances in capital allowance pools that relate to FHL expenditure incurred before 6 April 2025 can continue to attract Writing Down Allowances at the standard main and special rate pool percentages. No new post April 2025 expenditure can be allocated to those FHL pools, but existing balances can be written down until fully relieved.
FHL losses computed for years up to and including 2024/25 can be carried forward and set against future profits of the property business, subject to the detailed transitional rules in the Finance Act provisions implementing the abolition.
These losses and pool balances must be properly recorded in the Self Assessment return for the year in which they arise or are carried forward, to ensure they remain available and can be traced into future computations.
MTD for Income Tax: How It Changes Holiday Let Reporting
Making Tax Digital for Income Tax applies to sole traders and landlords from 6 April 2026 where their combined turnover from self employment and property exceeds the relevant threshold, currently £50,000 for the first mandated group. Under MTD, in scope they must maintain digital records in functional compatible software and send four quarterly updates each tax year, followed by a final declaration.
IMPORTANT- NO SEPARATE FHL CATEGORY UNDER MTD
MTD does not maintain a separate FHL category. All UK residential property whether let long-term or as a short-term holiday let is reported within a single property business. Spreadsheets can still form part of the system, but they must be connected to bridging software; records cannot be kept in standalone paper-based systems.
Digital Record-Keeping for Holiday Lets: What MTD Requires You to Capture
MTD requires digital records to be maintained on an ongoing basis rather than reconstructed at year end. For holiday let investors, the core categories are as follows.
Rental Income
Recorded on a transaction basis showing date received and gross amount. Platform statements from Airbnb or Booking.com should be imported regularly so quarterly updates are complete.
Allowable Expenses
Cleaning, repairs, utilities, insurance, letting fees, and advertising must be recorded and categorised correctly. Finance costs must be recorded separately from capital repayments.
Replacement of Domestic Items
Document the item replaced, cost of the replacement, and evidence that it is a like-for-like replacement. Any incremental improvement cost must be excluded from the claim.
Availability Records
Days available for letting and days actually let should still be maintained after abolition. HMRC may query historic FHL status, and these records are also relevant for business rates vs council tax determinations.
Protecting Your Tax Position: Key Compliance Strategies
Preserve and correctly roll forward capital allowance pools:
Any unrelieved FHL capital allowance pools on 6 April 2025 should be clearly identified and carried into your post abolition records, with Writing Down Allowances applied at the correct rates in subsequent years.
If, for example, you have £45,000 remaining in a special rate pool, a 6% Writing Down Allowance of £2,700 would be due in the first year, and failing to carry the pool forward could result in this relief being omitted.
Claim every eligible Replacement of Domestic Items Relief:
As this is now the main relief for furnishings in residential property, ensure you retain invoices and notes of the original items replaced and the like for like nature of replacements across your portfolio. Over several properties, these claims can accumulate to a material annual deduction.
Review ownership structure before adopting MTD:
Married couples and civil partners who hold a holiday let as joint tenants default to a 50:50 income split under standard residential property rules unless Form 17 is filed.
Where one spouse is a higher rate taxpayer, restructuring beneficial ownership and filing Form 17, within the 60 day filing deadline and supported by legal documentation such as a severance of joint tenancy and declaration of trust, can reduce the combined tax burden, subject to overall tax and legal advice.
Adopt MTD-compliant software before the April 2026 deadline:
Building digital record-keeping habits now means your first quarterly submissions in 2026 will be based on a full year of clean data rather than a rushed catch-up exercise.
Conclusion
The article highlights key changes for holiday let investors due to the abolition of the FHL regime in April 2025 and the introduction of MTD for Income Tax in April 2026. FHL rules still apply for tax years 2024/25 and earlier, requiring proper documentation. After 2025, holiday let income will be taxed like standard property income, with restrictions on finance costs and capital allowances.
MTD will consolidate all residential properties under a single property business with digital record-keeping. To comply, investors must preserve capital allowances, claim eligible reliefs, and adopt MTD-compliant software by 2026.
