The abolition of the 'furnished holiday let' tax reliefs from 6 April 2025 now mean that for income tax and capital gains tax purposes, holiday lets are treated in the same way as tenanted properties.
This means that the following tax reliefs/benefits are now abolished:
Income tax benefits - abolished
- Full relief on mortgage interest payments, unlike for tenanted properties where tax relief is restricted to, at most, 20% of the mortgage interest payments.
- Capital allowances on furniture, fixtures and fittings
- Ability to split holiday let profits either by the ownership percentages or by reference to the actual work performed to manage the property
- Ability to use furnished holiday let profits as earnings when calculating pension contributions.
Capital gains tax reliefs - abolished
- Business Asset Disposal Relief (aka Entrepreneurs' Relief)
Usually, when a residential property in the UK is sold, the owners will be subject to capital gains tax at a rate of 18% or 24% (depending on the owner's level of income).
However, furnished holiday lets were given a special tax treatment and were eligible for Business Asset Disposal Relief, previously known as Entrepreneurs' Relief.
Business Asset Disposal Relief allowed owners of furnished holiday let properties to pay capital gains tax at a rate of only 10%, which was a significant saving compared to the 18% or 24% payable on the sale of tenanted properties.
- Rollover relief
Rollover relief was available when the proceeds from the sale of a furnished holiday let property were 'reinvested' to purchase another furnished holiday let property. Rollover relief allowed the capital gains tax arising from the sale of the first property to be delayed until the sale of the second property.
- Gift hold-over relief
If you gave away your holiday home, or if you sold it for an amount less than its market value to help the buyer, you could claim gift hold-over relief to defer the capital gains tax from the disposal of the property. The capital gains tax only became payable when the recipient of the gift disposed of the property.
All of these benefits are no longer available since 6 April 2025.
Changes effective from 6 April 2025
Here is a worked example to illustrate the impact of the changes effective from 6 April 2025.
Income tax impact
An individual owns a furnished holiday let and currently earns annual letting income of £15,000, with the following annual costs:
Letting agent fees: £3,750
Repairs and maintenance: £1,200
Cleaning: £2,000
Insurance, rates, utilities: £800
Mortgage interest payments: £2,500
Total annual costs: £10,250
Before 6 April 2025, the furnished holiday let profits were calculated as being:
£15,000 - £10,250 = £4,750 profit
This was then taxed at your marginal rate of tax, leading to the following tax liabilities:
| Pre-April 2025 tax bill | Pre-April 2025 net profit after tax | |
| Basic rate taxpayer | £950 | £3,800 |
| Higher rate taxpayer | £1,900 | £2,850 |
| Additional rate taxpayer | £2,137.50 | £2,612.50 |
However, from 6 April 2025 onwards, relief for mortgage interest payments has been restricted, in line with rental properties. Mortgage interest payments will not be deducted from the letting profits, but instead, a credit for 20% of the interest payments will be deducted from the tax bill.
This leads to the following tax bill and net profit figures:
| Pre-April 2025 tax bill | New tax bill | Additional income tax | Pre-April 2025 net profit after tax | New net profit after tax | |
|
Basic rate |
£950 | £950 | £nil | £3,800 | £3,800 |
| Higher rate taxpayer |
£1,900 | £2,400 | + £500 | £2,850 | £2,350 |
| Additional rate taxpayer |
£2,137.50 | £2,762.50 | + £625 | £2,612.50 | £1,987.50 |
As can be seen above, higher rate and additional rate taxpayers will see a significant reduction in the profitability of their holiday let properties.
To discuss any tax matters associated with furnished holiday lettings, please give Aled a call on 07808 798 569. Full contact details are available at Contact Us.
