HMRC's Abolition of the Furnished Holiday Let Regime: The First Full Tax Year In

In short: The Furnished Holiday Let regime was abolished by Finance Act 2025 with effect from 6 April 2025 (income tax and CGT) / 1 April 2025 (corporation tax). The first full non-FHL tax year (2025/26) is now in preparation; returns are due to HMRC by 31 January 2027. The consequences most operators feared are now being modelled by their accountants. This piece names them and points to the operational responses. Our sister firm STL Accounting and Finance handles the tax side of this end-to-end.

STL Solutions is not a firm of accountants and we do not give tax advice; the tax side of this is handled by our sister firm STL Accounting and Finance. What we do see, however, is the operational fallout when operators come to us for planning or licensing work after their accountant has delivered a difficult conversation about the tax year in preparation. Those conversations have been consistently difficult in H1 2026.

What has actually happened

The abolition of the FHL regime removed four separate advantages simultaneously. All four are now being felt.

1. Loss of full mortgage interest relief. Interest on borrowing is now subject to the same 20% basic-rate restriction that applies to standard residential lettings. For higher-rate taxpayers with meaningful loan-to-value on their portfolios, this is the single largest cash impact. 2. Loss of capital allowances on furniture and equipment. Replacement of Domestic Items Relief (like-for-like replacements) remains available under the standard property income rules, but the fuller capital allowances previously available on FHLs are gone. 3. Loss of eligibility for pension contribution relief on rental profits. For operators using rental profits to fund pension contributions, the loss of "relevant UK earnings" status has meaningful long-term consequences. 4. CGT reliefs on sale. Business Asset Disposal Relief and rollover relief are no longer available on FHL disposals in the same way. Rate note: BADR itself is not zero — the BADR rate on qualifying business disposals rose from 10% to 14% on 6 April 2025 and to 18% from 6 April 2026 (lifetime limit £1m). And for an FHL business that ceased before 6 April 2025, BADR remains available on a disposal within three years of cessation, subject to the qualifying conditions — a material planning window for exit-planners. Operators without access to that transitional route face residential-property CGT at 18%/24% on a disposal now.

The behavioural responses we are seeing

Operators have responded in three broad ways.

Some are exiting. The combination of the tax change, the tighter planning environment, and the tougher insurance and mortgage markets has pushed a subset of operators to sell. Where the property is in a Control Area or has a planning position that would be expensive to defend, exit has often been the rational choice.

Some are switching to serviced-accommodation trading models — specifically, models that qualify as a trade rather than a property business, which unlock a different set of tax reliefs including full plant-and-machinery capital allowances. This is a specialist area with strict tests, and it is not the residual FHL regime under another name — it needs proper professional advice, not a summary from a blog post.

Most are staying and absorbing the change. For operators with mature businesses and low LTV, the change is significant but not fatal. The typical response has been to review pricing, tighten cost control, and — importantly — address any lingering planning or licensing issues that would make an eventual exit more expensive than it needs to be.

Why the planning position now matters more

An operator whose planning position is clean and evidenced — a Certificate of Lawfulness or a planning permission — has options at any point in the cycle. They can sell, they can refinance, they can weather a change in market conditions.

An operator whose planning position is unresolved has fewer options and, on any exit, will discover that the discount a buyer applies for planning uncertainty is significantly larger than the cost of resolving that uncertainty in advance.

This is now the third market in which we have observed the same pattern - insurance, mortgages, and now sale price. In each, the planning-clean operator has materially more room to move.

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STL Solutions