HMRC Furnished Holiday Lettings Rules: UK Guide

For over four decades, short-let landlords in the UK operated under a specific tax framework called the Furnished Holiday Lettings (FHL) regime. That regime was abolished on 6 April 2025, and the transition has caught a significant number of operators off guard. This guide explains what the old rules were, what replaced them, and what you need to do now to stay compliant.

The FHL regime gave short-let landlords access to a set of tax advantages that standard buy-to-let landlords could not access. To qualify, a property had to be available to let for at least 210 days per year and actually let for at least 105 of those days. Periods of personal use did not count towards the letting condition.

The benefits were meaningful. Mortgage interest could be deducted in full against rental income, rather than being restricted to a 20% tax credit. Capital gains tax reliefs such as Business Asset Disposal Relief, Rollover Relief and Gift Hold-Over Relief were available. FHL income counted as earnings for pension contribution purposes, and capital allowances could be claimed on furniture, fittings and equipment. For higher-rate taxpayers running properties in places like the Lake District, Cornwall or Edinburgh's Old Town, these reliefs added up to thousands of pounds per year.

The Spring Budget 2024 announced the abolition of the FHL regime with effect from 6 April 2025. From that date, short-let properties are treated in the same way as standard residential lettings for income tax and capital gains tax purposes. There is no longer a separate qualifying test based on availability or occupancy days. A property rented on Airbnb in Whitby is now taxed identically to a property on a standard assured shorthold tenancy in Wolverhampton.

The loss of mortgage interest relief is the change that hits hardest. Under the old rules, a landlord paying £12,000 a year in mortgage interest on a short-let property could deduct the full amount before calculating their tax bill. From April 2025, that deduction is replaced by a 20% tax credit, the same restriction that has applied to long-let landlords since 2020. For a 40% taxpayer, this effectively doubles the tax cost of their borrowing.

Capital gains tax reliefs linked to business asset status have also gone. If you sell a short-let property now, Business Asset Disposal Relief is no longer available, meaning gains above your annual exemption are taxed at the standard CGT rates for residential property, which currently sit at 18% for basic rate and 24% for higher rate taxpayers. Always seek advice from a qualified tax adviser before making disposal decisions, as your specific circumstances will affect the position considerably.

Short-let rental income is now treated as property income, sitting in the same tax 'pot' as any other residential letting income you receive. You report it on a Self Assessment tax return under the UK Property pages. The profit, after allowable expenses, is added to your other income and taxed at your marginal rate: 20%, 40% or 45% depending on your total earnings.

One area that has not changed is the Rent-a-Room relief, which allows you to earn up to £7,500 per year tax-free if you are letting a room in your own home. This is a separate relief and was not affected by the FHL abolition. Equally, the property income allowance of £1,000 still exists for people with very small amounts of rental income, though it is rarely relevant for active short-let operators managing whole properties.

If you operate your short lets through a limited company, the position is different again. Corporation tax applies to profits, currently at 25% for profits above £250,000 and 19% for profits under £50,000, with marginal relief in between. Company structures have become more attractive to some operators since the FHL changes, but they come with their own costs and complexity. This is an area where professional advice is not optional.

The abolition of the FHL regime does not mean the end of expense deductions. Standard property income rules allow you to deduct expenses that are incurred wholly and exclusively for the purpose of the letting. For a short-let property in a city like Manchester or Birmingham, that typically covers a wide range of day-to-day costs.

The Replacement of Domestic Items Relief deserves a mention because it is often missed. If you replace a sofa, a bed, curtains or kitchen appliances in a short-let property, you can deduct the cost of the replacement item (not an improvement) against your rental income. You cannot claim capital allowances on these items as you could under the old FHL regime, but the replacement relief is a reasonable substitute for most recurring expenditure.

Under the FHL regime, qualifying income counted as relevant earnings, which had National Insurance implications but also allowed pension contributions to be funded from it. That link has been severed. Passive rental income does not attract Class 2 or Class 4 National Insurance contributions, and it no longer counts as earnings for pension purposes.

Whether your short-let activity constitutes a trade for tax purposes rather than passive investment remains a grey area that HMRC has not definitively resolved. Operators who provide substantial additional services, such as daily cleaning, concierge support or regular meal provision, may be running something closer to a trade. If that applies to your operation, the NIC and pension treatment could differ. This is genuinely complex territory and the answer depends on the specific facts, so take advice before assuming either way.

HMRC expects you to keep records for at least five years after the 31 January filing deadline for the relevant tax year. For a short-let operator, good record-keeping means more than saving your Airbnb payout statements. You should be keeping invoices for every repair, every cleaning job and every piece of replaced furniture. Bank statements showing platform receipts and expense payments should be retained. If you use a management company for a property in Leeds or Liverpool, keep copies of their monthly statements and any management agreements.

One practical issue that trips up a lot of operators is separating personal use from letting use when a property is used by the owner for part of the year. If you spend three weeks in August at your Lake District cottage and let it for the rest of the year, expenses need to be apportioned. HMRC does not specify a single method, but the apportionment needs to be reasonable and consistent. Time-based apportionment is the most commonly accepted approach, but get advice if the amounts involved are significant.

Making Tax Digital for Income Tax (MTD ITSA) is being phased in from April 2026 for landlords and sole traders with income above £50,000. From April 2027, the threshold drops to £30,000. If your gross short-let income exceeds these thresholds, you will need compatible software to keep digital records and submit quarterly updates to HMRC. Planning for this now, rather than scrambling in 2027, will save considerable stress. You can find more detail on the current rules and how Truestays approaches compliance at /resources.

If you want to understand how the current tax environment affects the income potential of a specific property, Truestays can run a free income estimate based on real booking data for your area. There is no obligation, and it gives you a realistic baseline to work from when talking to your accountant about structure and tax planning.