The latest serviced accommodation changes affecting short term let hosts are actually the result of a major reform that took effect in April 2025—so 2026 is the first full tax year where the new rules fully apply. Here’s a clear breakdown of what’s changed and what it means now:
Key change (effective from April 2025 → fully in force in 2026)
The UK government abolished the Furnished Holiday Let tax regime.
- This was announced in the Spring Budget 2024
- Took effect:
1 April 2025 (companies)
6 April 2025 (individuals)
From the 2025/26 tax year onwards (i.e. now in 2026), FHLs are no longer treated as a special tax category.
What’s changed in practice (2026 rules)
1. No more special tax advantages
Previously, FHLs had favourable treatment. These are now gone:
- Capital allowances on furniture/equipment
- Full mortgage interest deduction
- Business Asset Disposal Relief (favourable CGT)
- Counting profits as “earned income” for pensions
All removed to “level the playing field” with long-term lets
2. Now taxed like a normal rental property
From 2026:
- FHL income is treated the same as standard property income
- Falls under your UK property business
- Same rules as buy-to-let landlords
3. Mortgage interest relief restricted
- Now subject to the standard 20% tax credit rules
- No longer fully deductible against rental income
This is a major hit for higher-rate taxpayers
4. Capital allowances replaced
- You can’t claim capital allowances anymore
- Instead: use “replacement of domestic items relief” (like normal landlords)
5. Capital Gains Tax (CGT) changes
- No special FHL CGT reliefs
- Standard residential CGT applies:
- Typically 18% / 24% rates
6. Profit splitting rules tightened
- Married couples/civil partners:
- Default 50:50 income split now applies
- No flexible allocation like before
7. Transitional rules (important)
- If your property qualified as an FHL before April 2025:
- You could still use old rules for the 2024/25 tax return
- But from 2025/26 onwards (now) → fully under new regime
What you can still claim (2026)
Even though FHL perks are gone:
- Allowable expenses (cleaning, utilities, agent fees, repairs)
- Replacement furniture relief
- Finance cost tax credit (20%)
These are the same rules as any landlord
Why the government did this
The aim was to:
- Reduce tax advantages for short-term lets
- Encourage switching to long-term housing supply
- Simplify the tax system
What it means for you in 2026
Likely impacts:
- Higher tax bills (especially higher-rate taxpayers)
- Lower net profitability
- More owners considering:
- Switching to long-term lets
- Selling
- Using a limited company structure
Bottom line
In 2026, furnished holiday lets:
- Are no longer a special tax category
- Are taxed exactly like standard rental properties
Summary
Navigating the ever-evolving landscape of holiday let legal changes can bewildering for many holiday let owners. If you’d like impartial advice to see where you stand with your short term let, then contact us at Help My Holiday Let
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