If you own a furnished holiday let (FHL), big tax changes are on the way. From 6 April 2025, the favourable tax treatment for FHLs will disappear, bringing them in line with standard residential lets.
One of the biggest impacts? Landlords will no longer be able to deduct mortgage interest and finance costs in full when calculating their taxable profits. Instead, relief will be limited to a 20% tax credit, which could increase borrowing costs for many landlords.
Here’s what you need to know.
What’s Changing for Furnished Holiday Lets?
Up until 5 April 2025, landlords of qualifying FHLs can fully deduct interest and finance costs when calculating their taxable profits—just like a trading business.
But from 6 April 2025, those benefits will disappear, meaning:
- FHLs will no longer be treated separately from other residential lets.
- Finance costs (including mortgage interest) will no longer be deductible when calculating taxable profits.
- Instead, landlords will receive a basic rate tax credit (20%) on their finance costs.
While corporate landlords (limited companies) will still be able to deduct mortgage interest as before, individual landlords will be hit hardest—especially those paying tax at the higher (40%) or additional (45%) rate.
How Will Mortgage Interest Relief Work from April 2025?
Rather than deducting mortgage interest and finance costs from rental profits, landlords will instead receive a basic rate tax credit equal to 20% of the lowest of:
- Total mortgage interest and finance costs
- Profits of the property business
- Adjusted total income (income after losses and reliefs, excluding savings and dividends)
This means higher-rate and additional-rate taxpayers will no longer get full tax relief on their finance costs.
Key Points to Note
- From April 2025, all rental profits (including former FHLs) will be combined into one property business—there’s no longer a separate category for holiday lets.
- Any unused finance costs (where relief can’t be fully claimed in a tax year) will be carried forward for use in future years.
- There’s no longer a need to meet FHL conditions, such as availability and occupancy rules—all holiday lets will be treated as standard residential lettings for tax purposes.
Who Will Be Affected?
If you have a mortgaged holiday let, these changes could significantly increase your tax bill.
- If you’re a basic rate taxpayer (20%), the impact will be minimal, as you still receive relief at your marginal rate.
- If you’re a higher rate (40%) or additional rate (45%) taxpayer, this change means you’ll only receive 20% relief instead of 40% or 45%—effectively doubling the cost of your borrowing in tax terms.
What Should Landlords Do Now?
If you own an FHL with a mortgage, now is the time to review your options.
✔️ Consider restructuring – Some landlords may benefit from incorporating their property business, as limited companies can still fully deduct mortgage interest.
✔️ Reassess rental profitability – With higher tax costs, is your holiday let still financially viable?
✔️ Plan ahead for increased tax bills – If you’re a higher-rate taxpayer, make sure you’re prepared for a potential rise in tax payments.
Need Advice on the New FHL Tax Rules?
The loss of FHL tax benefits is a big shift for landlords, and now is the time to plan ahead. If you’re unsure how these changes will affect your business—or whether incorporation could be a good move—Jon and the team can help.
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Any questions?
If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant
- You can ring us on 0151 380 8080
- You can email us at gr****@*********************co.uk