UK furnished holiday let tax changes in 2025

The UK’s short-term rental sector has experienced rapid growth in recent years, driven by the rise in staycations and favourable tax incentives for furnished holiday lets (FHLs). However, that financial landscape is about to shift dramatically (writes Howard Reuben, Principal, HCH Financial Services).

From April 2025, sweeping holiday let tax changes came into effect – changes that every holiday let owner, mortgage broker, and property adviser must understand.

If you own or manage a holiday let in the UK, here’s what’s changing, how it might impact you, and what steps you can take now to protect your profits.

What are the 2025 furnished holiday let tax changes?

Income from FHLs is no longer treated as a separate tax category. Instead, it is taxed like a standard buy-to-let (BTL) investment. This ends many of the tax benefits that have long made holiday lets attractive to UK investors.

Key tax changes:

• Mortgage interest relief will be restricted – it is now only claimable at the basic rate of income tax.

• Capital allowances are scrapped – you’ll no longer be able to deduct refurbishment or furnishing costs from profits.

• Capital Gains Tax (CGT) reliefs like Business Asset Disposal Relief and Rollover Relief have been removed.

• Pension contributions can no longer be based on FHL income, which affects retirement planning.

  
  

These changes apply to individual landlords, trusts, and companies currently benefiting from the FHL regime. For those with highly leveraged properties, the impact on taxable income could be significant – especially for higher-rate taxpayers.

What does this mean for holiday let landlords?

The shift will hit profits and increase tax liability for many landlords, depending on their income bracket and property ownership structure.

• Basic-rate taxpayers are likely to notice only minor changes.

• Higher-rate taxpayers could see substantial rises in their tax bills.

• Limited company landlords will not be affected by the finance cost restrictions – which is a key point of strategic interest.

  
  

In light of this, more investors are considering transferring personally owned holiday lets into limited company structures to reduce tax exposure and secure long-term benefits.

Should you move your holiday let into a limited company?

Owning a holiday let through a limited company can offer multiple advantages:

• Corporation tax rates (25%) are lower than personal tax rates (up to 45%).

• Full mortgage interest can still be deducted from rental income.

• Company ownership supports long-term estate planning and asset protection.

  
  

However, transferring a personally owned property into a company is not tax-free. It's treated as a sale-and-purchase transaction, which may trigger:

• Capital Gains Tax.

• Stamp Duty Land Tax.

That’s why working with both tax specialists and holiday let mortgage brokers is essential to ensure your transition is financially viable and strategically sound.

How HCH Financial Services can help

Since the government’s mortgage interest relief changes under the former Chancellor, George Osborne, HCH Financial Services has helped hundreds of landlords navigate ownership structure transitions. With these new FHL rules, our support is more relevant than ever. We will:

• Work with you and your tax adviser to create a tailored ownership strategy.

• Access a network of specialist lenders who understand holiday let finance.

• Explore remortgage options for both personal and limited company ownership.

Why act now?

The sooner you act, the more options you’ll have. FHL owners who review their portfolio now will be better positioned to mitigate tax risks and maximise long-term returns.

Contact HCH Financial Services today for a holiday let mortgage review:

• Email: advice@hchfs.com

• Phone: 0333 1234 536