Minutes to read 5
The 2025/26 tax year is set to bring significant changes for UK landlords, particularly those who own and operate furnished holiday lets (FHLs). With the Government’s decision to scrap the FHL tax regime, many landlords will see a shift in how their rental income is taxed, impacting profits, allowances, and future investment decisions.
Additionally, broader tax adjustments could affect the wider property rental market, making it crucial for landlords to stay ahead of the changes. In this blog, we’ll break down what’s changing, how it might affect your rental business, and what steps you can take to prepare.
In addition to the changes to the FHL regime, the Autumn 2024 Budget introduced several other measures that landlords need to be aware of — most of which are already in effect. We will also recap these key changes below.
Abolition of the Furnished Holiday Let (FHL) Regime
What is the FHL Regime?
The Furnished Holiday Lettings (FHL) regime is a tax framework that treats property lets as a trade for income tax and capital gains purposes, subject to the properties meeting specific criteria for short-term letting. As a result of the treatment, as a trade, FHLs are subject to certain taxable advantages that regular residential lets do not benefit from.
FHL Changes
Loss of Capital Allowances
Currently, FHL landlords can claim capital allowances on furniture, fixtures, and equipment i.e., plant and machinery. From April 2025, it will no longer be possible to claim capital allowances on plant and machinery. It is worth noting that whilst capital allowances have been scrapped, any allowances previously applied to assets already purchased, these will carry forward and relief remains available on remaining written down values.
Restriction on Mortgage Interest Relief
Under the FHL regime, landlords could deduct mortgage interest as a business expense. After the regime change, they will be subject to the same rules as standard rental properties, meaning mortgage interest will only receive basic rate (20%) tax relief rather than full relief. It is worth noting that this will not impact those operating furnished holiday lets via a limited company model, who will continue to be able to deduct mortgage interest from trading profits subject to corporation tax.
End of Capital Gains Tax (CGT) Reliefs
FHL properties currently benefit from:
- Business Asset Disposal Relief: allowing a lower Capital Gains Tax (CGT) rate when selling (10% in the 2024/25 tax year, rising to 14% in 25/26 and 18% in 26/27)
- Rollover Relief: Enabling reinvestment of gains without immediate CGT.
- Gift Holdover Relief: Which defers CGT when gifting a property.
From April 2025, these reliefs will no longer apply, meaning landlords could face higher CGT bills when selling or transferring properties.
Impact on Pension Contributions
Likely to be a consideration for a minority of landlords, but for those that make personal pension contributions it will be worth considering the impact that the reclassification of FHL income will have on relevant earnings. Relevant earnings determine how a UK taxpayer can personally contribute into a pension scheme and receive tax relief.
Only certain earnings count towards relevant earnings, primarily employment income and self-employment income – as FHL income will no longer be classified as a trade, the income earned from FHLs will no longer count towards relevant earnings. Again, this will not impact limited company FHL businesses, as contributions made from a limited company are not restricted by a person’s relevant earnings.
We can refer you to our trusted partners at Azets Wealth Management if you’d like to learn more about personal pensions and retirement planning. The independent advisors at Azets will provide expert advice based on your financial goals and unique circumstances to to structure your wealth and create a retirement plan that works for you.
Losses
Currently losses from a Furnished Holiday Let (FHL) can only be carried forward and offset against future profits from the same FHL business—they cannot be used to reduce other property or personal income. This restriction will be removed from April 2025, when FHLs are taxed under standard property income rules.
Going forward any losses from an FHL, whether from the current year or carried forward from previous years, will be treated as part of the broader UK or overseas property business. This means that:
- Individuals will be able to offset losses against other property income.
- Companies will be able to offset losses against other income in the following tax year.
VAT Implications
Although the regime is to be scrapped, it does not actually have any implications for VAT. Holiday accommodation, whether it previously qualified as an FHL or not (after April 2025) will remain standard rated for VAT.
Stamp Duty Changes
Outside of the abolition of the FHL regime, several other announcements were made in chancellor Rachel Reeves’ 2024 Autumn Budget that will impact landlords – primarily, those made to stamp duty.
Two major changes will increase the cost of stamp duty for landlords, with the increase in the surcharge for additional properties being brought in with immediate effect and the reduction of the nil rate band reducing from 1st April 2025.
It is important to consider these changes, which will impact the costs associated with purchasing a property – whether that be as an individual or via a limited company.
- Increase in the Additional Property Surcharge: The Stamp Duty surcharge on second homes and buy-to-let properties increased from 3% to 5%, making property investment more expensive for landlords and second-home buyers.
- Reinstatement of the £125,000 SDLT Threshold: The stamp duty nil-rate band will be reduced from £250,000 back to £125,000, from 1st April 2025. This means buyers will now start paying SDLT on purchases above £125,000. The £125,000 – £250,000 band will be charged at a rate of 2%, increasing the stamp duty cost on the average UK property by £2,500.
The cost of stamp duty changes significantly for a landlord purchasing an additional property dependent on the date of purchase, see the cost example below on a £250,000 property:
- Purchased before 31/10/2024: £7,500
- Purchased on or after 31/10/2024 but before 31/03/2025: £12,500
- Purchased on or after 01/04/2025: £15,000
Other Recent Changes
2030 EPC Target
Recently the Government announced plans for all private lets to be required to have minimum EPC C rating by 2030. This will need to be factored into ongoing costs for landlords.
Council Tax Premiums for Second Homes
Effective from 1st April 2025, local councils will be given the power to charge a 100% council tax premium on second homes, meaning landlords and holiday homeowners could pay double the standard council tax rate. The rules do differ in Scotland.
Renters Reform Bill
Backed by the current Labour Government, and anticipated to take effect in 2025, the renters reform bill key focus is strengthening tenant rights and increasing landlord regulation. With a specific focus on the abolition of non-fault evictions whilst introducing measures to allow landlords to regain properties if they plan to sell or move in themselves.
Landlords should consider the potential impact of the renters reform bill when it comes to making future decisions around their property portfolio and prospective investments.
Landlord Accounting with Gorilla
As the UK’s most trusted accountancy firm, we understand the challenges landlords can face and our expert property accountants can advise you on how these changes may impact you and your business. Request a callback today to speak to an accountant and click here to learn more about our all-inclusive landlord accountancy service or get an instant online quote.
