New Rules for Furnished Holiday Letting (FHL) Loss Relief from April 2025
A Unified Approach to Property Income
From 6 April 2025, a major shift is coming to the way rental income is taxed. The separate tax treatment that applied to Furnished Holiday Lettings (FHL) will be scrapped. Going forward, income from FHLs will be taxed under the same rules as income from other residential properties. If you own both FHLs and long-term rental properties, they will now be viewed as part of the same property rental business for tax purposes.
What Changes?
Before this reform, losses from an FHL could only be carried forward and used against future profits from FHLs. Likewise, losses from long-term rentals could only offset other long-term rental profits. Starting in the 2025/26 tax year, all rental income and expenses—whether from holiday cottages or residential lets—will be grouped together.
This means profits and losses will be assessed on a global basis. Instead of calculating profit or loss for each property separately, landlords will simply add up all rental income and subtract all property-related expenses (including general business expenses) to determine the overall profit or loss.
Real-World Example: Unified Loss Relief
Let’s say Leo owns three properties: two long-term lets and one holiday let. Here are his figures for the 2025/26 tax year:
| Property | Rental Income | Expenses | Profit/(Loss) |
|---|---|---|---|
| Residential Let 1 | £20,000 | £3,200 | £16,800 |
| Residential Let 2 | £24,000 | £2,700 | £21,300 |
| Holiday Cottage | £6,000 | £7,400 | (£1,400) |
Leo also incurs general property management costs of £2,700. His total profit calculation for 2025/26 is:
- Total rental income: £50,000
- Total property-specific expenses: £13,300
- General expenses: £2,700
- Overall profit: £34,000
The loss from the holiday let is automatically offset against the profits from the residential lets. Leo doesn’t need to file a separate claim to apply this relief.
What About Carried Forward FHL Losses?
If a landlord has any unrelieved FHL losses as of 6 April 2025, these don’t disappear. Instead, they can be brought forward and set against future profits from the now-combined property rental business. The good news is that these losses are no longer restricted to holiday let income—they can be used to reduce overall rental profits, even if the profits come primarily from long-term rentals.
Another Example: Making Use of Old Losses
Mary has both residential and holiday lets. Here’s how her situation unfolds:
- In 2024/25, she earns a £12,000 profit from her residential lets but makes a £3,000 loss from her holiday let.
- She also has £7,000 of unrelieved holiday let losses carried over from earlier years.
Because 2024/25 is still under the old rules, the losses from the holiday let cannot be set against her residential profit. She pays tax on the full £12,000 profit and carries forward the total £10,000 loss from her holiday property.
Fast-forward to 2025/26: Mary makes a £13,000 profit from her combined property rental business. Now under the new rules, she can set her £10,000 carried-forward loss against this income, reducing her taxable profit to just £3,000.
In Summary
The merging of FHLs with general residential lettings from April 2025 simplifies the treatment of rental income and losses. For many landlords, this offers more flexibility in offsetting losses and could reduce taxable income in years where holiday lets underperform.
Further Reading:
- ITTOIA 2005, Part 3
- ITA 2007, Part 4, Chapter 4