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If you rent out a Furnished Holiday Let (FHL), you might be surprised to learn that the special tax break you’ve enjoyed for many years is about to disappear. Starting on April 6, 2025, the rules that once gave you a big advantage—like deducting all your interest and finance costs—will no longer apply. Instead, you’ll be taxed as if your holiday home were any other residential rental. In this guide, we’ll break down exactly what’s happening, who it affects, and why it matters for your bottom line.
What’s Changing in April 2025?
Until now, landlords of furnished holiday accommodations had tax benefits that were not available to regular residential landlords. A significant advantage was the ability to deduct all mortgage interest and finance costs from rental profits before calculating tax, leading to savings, especially for those in higher tax brackets.
But starting April 6, 2025, this perk is going away for unincorporated landlords (those who own their holiday homes in their personal name rather than in a company). From that date forward, the income from holiday lets will be taxed under the same rules that apply to regular residential property. This means no more special treatment for interest and finance costs.
How Interest Relief Will Work After the Change
Under the new rules, you cannot simply deduct mortgage interest from your rental profits. Instead, you’ll get a basic rate tax deduction—currently 20%—on the lowest of the following amounts:
- The total interest and finance costs you pay in the tax year,
- The profits of your property business (the money you have left after expenses, but before adding interest),
- Your adjusted total income is your income after losses and reliefs. However, this excludes any savings or dividend income above your personal allowance.
This 20% limit on interest relief is a big change if you pay tax at a higher or additional rate. Once this rule is in place, you’ll only be able to claim 20% relief, no matter how high your personal tax rate might be. That can leave you with a bigger tax bill than you’re used to.
A Single Property Business
An important detail is that, from April 2025 onward, your holiday let properties won’t be calculated separately from any other residential rentals you own. Instead, all your properties will be treated as one property business. There won’t be any “furnished holiday letting” category for tax purposes anymore.
- All residential properties combined: You’ll add up the profits (or losses) from all your rental properties into a single figure.
- No separate FHL calculations: The old rules requiring you to meet “availability” and “letting” conditions for holiday homes will no longer apply.
If the amount of interest and finance costs you owe in a given year is more than the total profits or adjusted income, you won’t lose out forever. The unrelieved interest can be carried forward to use in a future year—when your profits might be higher, letting you claim that basic rate deduction later.
The Impact on Different Landlords
- Unincorporated Landlords: If you own holiday lets in your personal name and pay higher-rate or additional-rate tax, this change could make your mortgage interest more expensive. Since you can only claim 20% relief, any extra tax you owe might eat into your profits.
- Corporate Landlords: Landlords who own their properties through a company can still deduct interest and finance costs from their rental profits. They don’t have to switch to the new 20% tax deduction rule. This is one reason why some landlords consider moving their properties into a limited company structure—though that can come with other costs and risks.
Why This Matters
This shift could drastically change the economic equation for people renting out holiday homes. If you’re used to paying 40% or 45% tax but getting the full interest deduction, you might suddenly find your tax bill going up in April 2025. In some cases, this extra cost might force landlords to:
- Raise rents (if the market allows),
- Sell properties that no longer turn a profit,
- Incorporate, although this can involve legal fees, stamp duty, and other complications.
Understanding these new rules ahead of time gives you a chance to plan, whether that means restructuring your business, reviewing your mortgage, or even rethinking your entire property strategy.
The upcoming FHL tax changes may impact your rental profits and investment plans. For further advice, contact our tax advisors to assess your situation, model its effects, and develop a plan that is suitable for you. Staying informed will help you manage your finances in April 2025 and beyond.