Furnished Holiday Lets in Your 2025/26 Tax Return: What Has Changed

The furnished holiday lettings regime ended on 5 April 2025. From 6 April 2025, furnished holiday lets are treated in the same way as any other residential rental property. If you owned a holiday let in 2025/26, your first year of reporting under the new rules has arrived. The changes are significant enough to get wrong if you are not careful.

How FHLs are treated now

From 6 April 2025, furnished holiday let income and expenses are pooled with your other rental income to form a single UK property business. There is no longer a separate section on the SA105 for furnished holiday lets. Everything goes into the single UK property section. The special tax advantages that made FHLs attractive, including capital allowances on domestic items, full finance cost relief, pension contribution eligibility and access to business asset disposal relief, are no longer available from the 2025/26 tax year onwards.

Finance costs

Under the old FHL regime, mortgage interest and other finance costs on a holiday let were fully deductible as an expense. From 6 April 2025, they are treated in the same way as for residential buy-to-let properties. Relief is given as a basic rate income tax reduction at 20%, not as a deduction from income. This means higher and additional rate taxpayers lose part of their relief. On the SA105, finance costs go in box 44, not in the expenses section.

Capital allowances

Capital allowances are no longer available for expenditure on domestic items in former FHLs from 6 April 2025. Replacement domestic items relief applies instead, as it does for ordinary residential lets. If you had an existing capital allowances pool balance as at 5 April 2025, you can continue to claim writing down allowances on that balance. But no new capital allowances claims can be made for domestic items purchased from 6 April 2025 onwards.

Losses

Under the old FHL rules, losses could only be carried forward and set against future FHL profits. From 6 April 2025, any FHL losses brought forward can be used against the profits of the amalgamated property business, which includes both former FHLs and ordinary residential lets. This is a more flexible position than before.

How to complete SA105 for 2025/26

All UK property income including former FHL income goes in box 20. Amalgamate the income and expenses from all properties. Finance costs on former FHLs go in box 44 alongside mortgage interest on ordinary residential lets. Relief is calculated at 20% of the combined finance costs figure. Losses brought forward from former FHLs go in box 39 and can be used against the total property profit in box 38.

A worked example

Anna has a residential flat generating £8,000 in rent and a former holiday cottage generating £15,000. She pays £2,300 in mortgage interest on the cottage. Her combined expenses total £7,920. Property income is £23,000. After deducting expenses of £7,920, her profit is £15,080. A loss of £1,100 brought forward from the former FHL leaves a taxable profit of £13,980. The £2,300 mortgage interest provides a basic rate tax reduction of £460.