How to prepare for the end of the FHL scheme

More than 130,000 individuals in the UK who earned income from furnished holiday lettings (FHLs) were affected when the Government abolished the scheme’s tax benefits from 6 April 2025, Price Bailey research showed.

The FHL scheme had offered advantages over standard residential letting rules: full deductibility of mortgage interest payments, more generous capital allowances, and business asset Capital Gains Tax (CGT) reliefs. FHL income also counted as relevant earnings for personal pension purposes. Those benefits ended for the 2025/26 tax year onwards, and landlords who have not yet reviewed their position need to act.

This article sets out the steps to take now, and answers the questions landlords are asking as the changes work through their first full tax year.

[Content reviewed 08/2026]

1. Review your financial and operational position

The end of the FHL scheme reduced deductions and increased tax liabilities for most former FHL owners. The loss of full mortgage interest deductibility, in particular, can significantly reduce net profits: relief on finance costs is now given as a basic rate tax reduction rather than a deduction against income, which means some owners are paying tax on profits that do not fully exist as available cash.

Work through your cash flow and profitability on the new basis, and identify where costs can be reduced or revenue increased to keep the lettings business viable under the current rules.

2. Reassess your portfolio

Without the former tax benefits, some properties in a portfolio may no longer be sufficiently profitable to justify holding as holiday lets. Selling, or transitioning a property to a long-term residential let, can provide a more stable income where the numbers no longer work as a short-term let.

Factor the end of the FHL scheme into any valuation or disposal decision, since it affects both the ongoing income position and the CGT treatment on sale.

3. Consider alternative financing and structures

The basic-rate cap on loan interest deductions has had the greatest effect on properties carrying high levels of borrowing. Refinancing to secure more favourable terms, or paying down borrowing to more manageable levels, are both worth reviewing, including using equity released from selling less viable properties.

Incorporation is an option some owners have considered. Operating through a company retains full relief on finance costs, but it typically triggers a CGT event on the transfer of the property into the company and may involve refinancing, so it needs advice specific to the individual’s position before any decision is made.

4. Check treatment of pre-2025 capital allowances

Owners with capital allowance pools already in place before 6 April 2025 generally continue to claim those allowances on a reducing balance basis, even though no new claims can be started. Historic losses from FHL operations can still be carried forward and offset against profits from the wider property business.

5. Review your pension strategy

FHL income is no longer relevant UK earnings for pension purposes, which reduces both the amount that can be saved into a pension and the tax relief available on those contributions. Anyone who treated their FHL portfolio as part of their retirement planning should revisit their savings strategy in light of this, and consider whether other tax-efficient options such as ISAs should play a larger role.

6. Simplify reporting

One practical upside of the change is simpler reporting. FHL income is now treated the same as other residential property income and consolidated with it, removing the need for separate calculations. This is a good point to centralise financial records and, particularly with Making Tax Digital now in force for many landlords, to review whether current software is set up for digital reporting.