If you own a Furnished Holiday Let (FHL), big tax changes are coming your way. The government has announced that from April 2025, the special tax perks for FHLs will be scrapped. This means holiday lets will be taxed in the same way as other rental properties.
If you're a property investor or landlord, now is the time to plan ahead and make sure you’re not caught off guard. Let’s break down what’s happening, what it means for you, and what steps you can take to stay ahead of the game.
What’s Changing?
At the moment, FHLs have some great tax advantages that set them apart from standard rental properties. These include:
✅ Full mortgage interest relief – Unlike regular landlords, FHL owners can deduct all their mortgage interest from their rental income.
✅ Capital allowances – You can claim tax relief on things like furniture and appliances.
✅ Lower Capital Gains Tax (CGT) – When you sell, you might qualify for Business Asset Disposal Relief, which means paying CGT at 10% instead of 18% or 28%.
✅ Pension perks – Profits from FHLs count as “earned income,” so you can use them to make tax-efficient pension contributions.
From April 2025, all of this will disappear. Instead, FHLs will be taxed just like standard long-term rentals.
What Does This Mean for You?
Here’s how the changes could hit your pocket:
❌ Higher tax bills on rental profits – Mortgage interest relief will be capped at basic rate tax (20%), which could mean bigger tax bills for higher earners.
❌ No more capital allowances – You’ll only be able to claim tax relief when replacing domestic items, like sofas or fridges.
❌ More Capital Gains Tax when you sell – From April 2025, if you sell your holiday let, you won’t get the 10% CGT rate anymore. Instead, you could be looking at a 24% tax bill on any gains (up from 18% for basic rate taxpayers and down from 28% for higher rate taxpayers).
❌ Pension planning impact – If you’ve been using FHL profits for pension contributions, you might need to rethink your strategy.
🚨 Jointly Owned Properties Between Spouses – What You Need to Know
If you own an FHL jointly with your spouse, another key change is coming your way. From April 2025, HMRC will automatically assume that ownership is split 50/50, unless you take action.
Under the current FHL regime, you can split rental income in any proportion you agree, which can be helpful for tax planning—especially if one spouse is in a lower tax bracket. However, from April 2025, FHLs will follow the same rules as other property income:
➡️ By default, income from jointly owned property must be split 50/50 for tax purposes.
➡️ If you want a different split (for example, 70/30 or 90/10), you must submit Form 17 to HMRC, along with evidence of actual ownership proportions.
➡️ The Form 17 election only applies to property owned as tenants in common—it doesn’t apply if you own the property as joint tenants.
➡️ Without a Form 17 in place, both spouses will be taxed on an equal share of the income, even if one contributes more financially or is in a lower tax band.
What Should You Do?
✔ Review how your FHL is owned – If your holiday let is owned jointly, check whether the new default 50/50 split will work in your favour.
✔ Submit Form 17 if needed – If a different split would be more tax-efficient, make sure to file Form 17 with HMRC as soon as possible (this must be done within 60 days of signing).
✔ Consider professional advice – If you’re unsure whether a different income split would be beneficial, now is a great time to get tax advice before the rules change.
What Can You Do About the FHL Tax Changes?
Don’t panic—there are still ways to reduce your tax bill and make the most of your property investment before these changes kick in. Here’s what to consider:
🔹 Use capital allowances before they go – If you’re planning any refurbishments or purchases for your holiday let, do it before April 2025 while you can still claim tax relief.
🔹 Review your mortgage strategy – With mortgage interest relief becoming less generous, now’s the time to check if your finance setup is still working in your favour.
🔹 Think about selling sooner rather than later – If you were planning to sell in the next few years, selling before the rule change could mean a lower CGT bill.
🔹 Check if incorporation makes sense – Moving your FHL into a limited company could have tax benefits, but this depends on your situation—speak to a tax professional before making a move.
Final Thoughts
This is a major shake-up for holiday let owners, and it’s essential to act now rather than later. If you have an FHL, reviewing your finances and tax strategy before April 2025 could save you thousands.
At Pharos Accounts, we specialise in property taxation and can help you understand the impact of these changes and make a plan that works for you. Whether you need advice on CGT, mortgage restructuring, joint ownership, or whether to incorporate, we’ve got you covered.
📩 Get in touch today, and let’s make sure your holiday let stays a profitable investment—whatever the tax rules say!
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