Furnished Holiday Let Tax Rules Explained

If you own a coastal cottage, harbour-view flat or second home in Cornwall, the furnished holiday let tax rules have probably been part of your planning for years. They have also become a lot more important recently, because the tax treatment that many owners relied on is changing. For some, that means a very different profit picture. For others, it is a reminder to review whether short-term letting still stacks up once tax, running costs and management are looked at properly.

For holiday let owners, tax is rarely the most exciting part of the job, but it does shape real decisions - when to buy, how long to let, what to spend on improvements and whether to hold a property personally or through a company. If you are letting in Falmouth or elsewhere in Cornwall, where seasonality can heavily affect occupancy, understanding the rules matters even more.

What the furnished holiday let tax rules used to offer

A furnished holiday let, often shortened to FHL, has historically been a special tax category for UK properties that met certain conditions. It sat in a useful middle ground. Although it was a property business, it received several tax advantages more commonly associated with trading.

That mattered because qualifying FHLs could benefit from capital allowances on certain items, more favourable treatment for pension contribution purposes, and specific capital gains tax reliefs in the right circumstances. For many owners, this helped offset the higher running costs that come with short-term accommodation, from linen and cleaning to guest consumables, marketing and changeover maintenance.

Those benefits made FHL status attractive, but there was always a catch. You had to qualify.

How a property qualified under furnished holiday let tax rules

Under the previous regime, a property generally needed to be in the UK or European Economic Area, be furnished, and be commercially let with a genuine intention to make a profit. It also had to pass three tests over the tax year.

The first was the availability test. The property needed to be available for commercial letting to the public for at least 210 days in the year. The second was the letting test. It had to actually be let commercially for at least 105 days. The third was the pattern of occupation test, which limited longer stays. Typically, lettings of more than 31 continuous days could not make up more than 155 days of the total.

On paper, that can sound straightforward. In practice, Cornwall owners know it is not always so neat. A property may be available for much of the year but still miss the 105-day test if off-season demand is soft, if there are owner stays during prime weeks, or if the home is being refurbished. This is one reason careful revenue planning matters. A well-managed calendar can affect more than income alone.

The big change from April 2025

The key point for many owners now is this: the FHL tax regime has been abolished from 6 April 2025 for individuals and from 1 April 2025 for companies. That means the old furnished holiday let tax rules no longer apply in the same way going forward.

Instead, income and gains from these properties are generally treated in line with other UK property businesses. In plain English, the special tax perks attached to FHL status have been removed.

This does not mean holiday lets are no longer viable. Far from it. In strong markets, they can still outperform standard long-term lets on gross income, especially where presentation, pricing and guest experience are handled well. But it does mean owners need to assess returns with a more realistic tax lens.

What has changed in practical terms

The most talked-about change is mortgage interest relief. Under the older FHL regime, finance costs could usually be deducted in full when calculating taxable profits. With the regime abolished, individual owners are generally brought closer to the rules for standard residential property income, where relief is restricted and given as a basic rate tax reduction instead.

For higher-rate and additional-rate taxpayers, this can increase the effective tax bill. A property that looked highly profitable before finance costs may feel much tighter once restricted relief is factored in.

Capital allowances are another area affected. Historically, qualifying FHLs could claim capital allowances on certain plant and machinery items. Going forward, new relief under those specific FHL rules is no longer available in the same way, although existing pools and transitional treatment may still need careful review.

Certain capital gains tax reliefs have also gone. Owners who had been planning around Business Asset Disposal Relief, gift relief or rollover relief should take advice before assuming those options still exist. In many cases, they will not.

What owners can still claim

The end of the FHL regime does not mean you cannot deduct legitimate expenses. You still can, provided they are wholly and exclusively for the property business and are revenue rather than capital in nature.

Typical allowable costs may include cleaning, laundry, booking platform fees, insurance, utilities, council tax where relevant, advertising, accountancy fees, repairs and maintenance, and management fees. If you use a professional short-term rental manager, those costs will usually form part of the normal expense profile.

The distinction between repairs and improvements still matters. Replacing a broken shower with a similar standard unit is usually a repair. Upgrading a basic bathroom into a luxury spa-style suite is more likely to be capital expenditure. That does not automatically make it a bad decision - premium improvements can lift occupancy and nightly rates in Cornwall's competitive market - but the tax treatment may be different.

Why occupancy still matters, even after the rule change

Although the formal FHL advantages have been withdrawn, occupancy remains a key commercial measure. In seasonal markets such as Falmouth, the difference between a property that is full in summer but empty for long shoulder periods and one that attracts consistent bookings across more months is significant.

Owners sometimes focus on peak-season weekly rates and overlook the wider picture. The stronger approach is to assess annual net income after management, cleaning structure, maintenance reserves, finance costs and tax. A home that secures solid shoulder-season demand through better styling, pricing and guest communication may outperform a property with a higher headline August rate but patchy bookings elsewhere.

This is where local knowledge has real value. Cornwall is not one market. Demand patterns differ between waterfront locations, town-centre flats, family houses near beaches and rural retreats. Tax rules may be national, but booking performance is very local.

Should you still run a property as a holiday let?

It depends on the property, your borrowing, and what you want from ownership.

If your home is in a strong short-stay location, photographs well, and appeals to a broad guest base, holiday letting may still produce better overall returns than a long-term tenancy, even with less favourable tax treatment. You also keep more flexibility for personal use, which matters for many second-home owners.

But there are trade-offs. Short-term lets are operationally intensive. They need sharper pricing, more guest communication, regular housekeeping, faster maintenance response and tighter presentation standards. Once the special tax treatment has gone, some owners will decide that the extra effort is only worthwhile if the income premium is clear.

Others will stay firmly in the holiday let market because the property would underperform as a standard tenancy, or because they value occasional owner stays. Neither choice is automatically right. The numbers need to be tested properly.

Furnished holiday let tax rules and common owner mistakes

One common mistake is relying on outdated advice. Many articles and forum posts still discuss the old FHL benefits as if nothing has changed. If your tax planning was built around full finance cost deduction or future capital gains reliefs, now is the time to revisit it.

Another is mixing personal and business expenditure too loosely. Holiday let owners often buy furnishings, décor and supplies in an informal way, especially when they use the property themselves. Good records matter. Keep invoices, separate business spending where possible, and make sure any owner use is clearly tracked.

A third is treating tax in isolation. The smarter view is commercial. If a better-managed property can command stronger rates, generate more five-star reviews and reduce voids, that may do more for your post-tax position than chasing small deductions.

The best next step for Cornwall owners

The most useful approach is to review your property as a full business, not just a tax category. Look at gross revenue, net profit, finance costs, likely tax treatment from April 2025 onwards, and whether your current setup is getting the most from the asset.

For some owners, that review leads to a simple record-keeping tidy-up. For others, it triggers bigger decisions about ownership structure, refurbishment timing, or whether a more hands-on management approach could improve returns enough to justify staying in the short-term market. At Guested, we often find that owners are less worried by tax changes once they have a clearer view of what the property can genuinely earn when it is marketed and managed properly.

If you are unsure where you stand, speak to a qualified tax adviser and bring them real numbers, not rough guesses. A well-run holiday let still has plenty going for it in Cornwall. The rules may have changed, but a carefully managed property in the right location can still work very well.