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

In short: The abolition of the Furnished Holiday Let regime took effect in April 2025 and the first full year of self-assessments has now been submitted. The consequences most operators feared have crystallised. This piece names them and points to the operational responses.

STL Solutions is not a firm of accountants and we do not give tax advice. 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 just gone. 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. Renewal and replacement can now be claimed on a like-for-like basis 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. Loss of CGT reliefs on sale. Business Asset Disposal Relief and rollover relief are no longer available on FHLs disposed of after 5 April 2025. Operators considering an exit now face 24% CGT (higher rate) rather than 10% BADR.

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 models that fall outside the FHL definition - specifically, models that qualify as a trade rather than a property business. This is a specialist area and the definitions are stricter than they appear on first read. Operators considering this route need 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, a planning permission, or a straightforward C4/C5 permitted position - 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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Ross Armstrong Head of Professional Services, STL Solutions