By the Unity Stays directors, Marcus Chong & Gadir Al-Khatib · Last updated 12 August 2026
In short: The furnished holiday lettings tax regime was abolished from April 2025, so short lets are now taxed broadly in line with other property letting: mortgage interest relief is restricted to the basic rate, capital allowances are no longer available as before, certain capital gains reliefs no longer apply, and profits no longer count as relevant earnings for pensions.
What was abolished
The Furnished Holiday Lettings regime was a set of tax treatments that applied to properties let on a short-term basis, provided they met availability and occupancy thresholds. It treated those properties more like a trade than an investment.
It was abolished from April 2025. Short lets are now taxed broadly in line with other property letting.
The four changes that matter most
In outline, and stated plainly rather than exhaustively:
- Finance costs. Mortgage interest relief is now restricted to the basic rate, as it already was for standard lettings. For higher-rate taxpayers this is usually the largest single change.
- Capital allowances. The allowances that applied to furniture and equipment in an FHL are no longer available in the same way.
- Capital gains reliefs. Certain reliefs that applied on disposal of an FHL no longer apply.
- Pension contributions. Short-let profits no longer count as relevant earnings for pension contribution purposes.
What did not change
The commercial case. A well-run short let can still out-earn a standard tenancy on the same property — that was always about gross income and occupancy rather than about the tax treatment.
What has changed is that the tax advantage is no longer part of the argument. The case now rests entirely on what the property actually earns, which is a cleaner way to look at it.
How to think about it now
Run the numbers on income, not on tax position. Take a realistic annual gross figure, subtract management, cleaning, software and voids, and compare that against the rent a standard tenancy would produce.
If short letting only worked because of the tax treatment, it may no longer work. If it worked on the income, it still does. The income calculator handles the first half of that; the second half is a conversation with your accountant.
Business rates and council tax
Separately from the FHL change, a property let short-term may fall under business rates rather than council tax if it meets availability and letting thresholds. Those thresholds differ between England, Wales and Scotland, and Welsh councils in particular apply second-home council tax premiums that can be substantial.
This is worth checking early. It affects the annual cost base and it is the kind of thing that is much easier to establish before you buy than after.
This is a plain summary of a public tax change, not tax advice. Your position depends on your circumstances, your other income and how the property is owned. Speak to your accountant before making a decision on this basis.