How does the 20% mortgage interest credit work for an ex-FHL property?

Finance costs are no longer deductible from rental profits at all. Instead HMRC gives a tax reduction equal to 20% of the lowest of three amounts: your finance costs for the year plus any unrelieved amount brought forward, your property business profits, and your adjusted total income above the Personal Allowance. Whatever isn't relieved carries forward. Higher-rate taxpayers roughly halve their interest relief, and taxable profit rises even when cash is identical. A £0 credit in a low-profit year is the rule working, with the excess carried forward.

I claimed capital allowances on FHL furniture — is that relief all gone?

New spending gets no capital allowances, but an existing pool survives: the government's policy paper lets you continue claiming writing-down allowances on a capital-allowance pool that existed on 5 April 2025, claimed in SA105 box 35. You cannot add new dwelling expenditure to it. Replacements of furniture and appliances now go through Replacement of Domestic Items Relief (box 36) instead — first-time purchases never qualify, and improvements are capped at the like-for-like cost.

Do my old FHL losses disappear after the abolition?

No — they survive and get more useful. The policy paper confirms losses from the former FHL business carry forward and can be set against future profits of your UK (or overseas) property business as a whole — any of your lets, not just the holiday let that generated them. This is the one clearly favourable change.

Do I still need to count the 105 and 210 letting days?

Not for income tax — the FHL occupancy tests died with the regime on 6 April 2025. The letting-day tests that still matter are the separate business-rates vs council-tax rules, which are their own system.

FHL is abolished — what actually changes on your 2025-26 holiday-let return

Last verified: 24 August 2026, against the cited gov.uk and HMRC sources. Covers the 2025-26 tax year — the return due online by 31 January 2027.

The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025 (gov.uk policy paper), so the 2025-26 return — due online by 31 January 2027 — is the first where your holiday let is taxed like any other rental. HMRC's own 2025-26 "UK property" form says it in print: "Boxes 5 to 19 are no longer in use." Five things change: mortgage interest becomes a 20% basic-rate credit instead of a full deduction; capital allowances are replaced by Replacement of Domestic Items Relief; your old FHL losses survive and become more flexible; holiday-let profits stop counting towards pension contribution headroom; and married couples default to a 50/50 income split.

What you had, and when it ended

For decades, a holiday let that passed the occupancy tests (available 210+ days, actually let 105+ days, long stays not dominating — HMRC helpsheet HS253) was taxed almost like a trade: full mortgage-interest deduction, capital allowances on furniture and equipment, business-asset CGT reliefs, and profits counting as relevant UK earnings for pensions. Abolition was announced at Spring Budget 2024 and legislated in the Finance Bill of November 2024; the operative date was 6 April 2025 for Income Tax and CGT. Your 2024-25 return was the last with FHL treatment. The occupancy tests are dead for income tax — though the separate business-rates vs council-tax letting-day tests still exist in their own system.

Change 1: mortgage interest — from full deduction to a 20% credit

This is the transition shock. Under FHL rules, £10,000 of interest cut your taxable profit by £10,000 — worth £4,000 to a higher-rate taxpayer. From 6 April 2025 the finance-cost restriction applies (gov.uk: tax relief for residential landlords):

Finance costs — mortgage interest, interest on loans to furnish the property, arrangement fees — are no longer deductible from rental profits at all. They do not go in your expense boxes.
Instead you get a tax reduction equal to 20% of the lowest of three amounts: (a) your finance costs for the year plus any unrelieved amount brought forward, (b) your property business profits, and (c) your adjusted total income above the Personal Allowance.
Whatever isn't relieved carries forward to next year's calculation.

Three consequences catch ex-FHL owners: higher-rate taxpayers roughly halve their interest relief (20% credit vs 40% deduction); your taxable profit rises even when your cash position is identical, which can drag you over income-tested thresholds (the £50,270 higher-rate line, the £100,000 allowance taper, Child Benefit charges, and the Making Tax Digital tests); and a £0 credit is possible in a low-profit year — the cap binding is the rule working, not an error, with the excess carried forward. On the form, this year's interest goes in box 44 and brought-forward unrelieved amounts in box 45 — not box 26, which is for non-residential finance costs only.

Change 2: capital allowances out, Replacement of Domestic Items Relief in

From 6 April 2025, spending on the dwelling gets no capital allowances; ex-FHL properties instead become eligible for Replacement of Domestic Items Relief (RDIR) in line with other property businesses (policy paper; HMRC manual PIM3210). RDIR, claimed in SA105 box 36, gives a deduction when you replace a domestic item — moveable furniture, furnishings, appliances, kitchenware — with these rules:

First-time purchases never qualify. Furnishing a newly bought cottage from scratch: no relief. Replacing its worn-out sofa three years later: relief.
Improvements are capped — if the new item is better than like-for-like, you can only claim up to the cost of replacing the original.
Add incidental costs (delivery, installation, disposal of the old item); deduct anything you got for the old item. The new item must be solely for guests' use and the old one no longer available.

The transitional rule most owners will forget: if you had a capital-allowance pool on 5 April 2025, the policy paper lets you continue claiming writing-down allowances on that pool — typically 18% (main rate) or 6% (special rate) a year on the reducing balance, claimed in SA105 box 35. You can't add new dwelling expenditure to it; it just writes down over the years. Dig the pool balance out of your 2024-25 return — it's the single most valuable thing ex-FHL owners leave unclaimed.

Change 3: your old FHL losses survive — and get more useful

Under FHL rules, losses could only carry forward against the same FHL business. After abolition, the policy paper confirms those losses carry forward and can be set against future profits of your UK property business as a whole — any of your lets, not just the holiday let that generated them. This is the one clearly favourable change. Brought-forward losses go in SA105 box 39 (capped at this year's profit), with any unused balance carried forward in box 43. Setting a property loss against your other income (box 42) remains possible only in narrow cases — the form itself says "this will be unusual".

Change 4: pensions — holiday-let profits no longer count

FHL profits counted as relevant UK earnings for pension relief. The policy paper ends that. Tax-relieved personal pension contributions are limited by relevant earnings (salary, self-employment profit — not property income), so if holiday-let profit was what justified your contribution level, from 2025-26 it doesn't; anyone without other earnings retains only the universal £3,600 gross allowance. This is a planning matter for a financial adviser.

Change 5: couples — the 50/50 default and Form 17

The FHL-era flexibility to split profits to match who did the work is gone. For jointly held property, ordinary rules apply: HMRC taxes spouses and civil partners living together 50/50 by default, whatever the actual ownership split. Form 17 (with evidence, such as a declaration of trust) is the route to being taxed on actual beneficial ownership instead. Unmarried co-owners are taxed on their actual shares. Each owner files their own SA105 with their share only, marking box 3.

What this means for your records

What you must now track	Where it lands on the 2025-26 SA105
Every booking: gross amount the guest paid, cleaning/extra charges, platform commission	Box 20 (income); commission is an allowable expense in box 27
Running costs by category	Boxes 24, 25, 27, 28, 29
Mortgage/loan interest — separately, never as an expense	Boxes 44/45 → the 20% credit
Replacements of furniture and appliances	Box 36 (RDIR)
Capital improvements & first-time purchases	Nowhere this year — keep as CGT records for a future sale
Pre-2025 capital-allowance pool WDA	Box 35
Old FHL losses	Boxes 39/43
Own use of the property	Box 30 (private-use add-back)

Two habits matter more than everything else. First, log gross, not payout: Airbnb pays you net of commission, but your taxable income is the gross the guest paid (including cleaning fees you charge), with the commission then claimed as an expense — the SA105 notes allow management fees paid to an agent under box 27. Logging only bank receipts understates both income and expenses and misstates the Making Tax Digital test, which looks at gross. Second, keep interest out of the expense list: deducting mortgage interest as an expense as well as (or instead of) claiming the credit is the most expensive silent error of the new rules.

Worth diarising: if your gross property income (plus any self-employment) was over £50,000 in 2024-25, MTD already applies to you from April 2026; over £30,000 in 2025-26 — the very year this return covers — brings quarterly digital reporting from April 2027 (gov.uk). Jointly owned? Only your share counts toward the threshold. See our MTD page.

If you want the new rules computed for you

Host Sorted (£14) is a no-macro Excel/Google Sheets workbook for exactly this first post-FHL return: a booking-by-booking Income Log for up to 5 properties with gross and commission in separate columns; a Finance Costs calculator that computes the real 20% lowest-of-three credit with the carry-forward and an illustrative old-vs-new comparison; a Domestic Items tab applying the RDIR improvement cap row by row; an SA105 Mapper with your figure for every 2025-26 box (verified against the actual form on gov.uk), including the transitional pool WDA and surviving losses; joint-ownership handling; and "WRONG TAB" tripwires that catch interest or replacement items logged as ordinary expenses. Plus a 3,412-word cited guide.

Host Sorted — £14 on Gumroad

Honesty first: it does not file with HMRC (you copy figures into HMRC's free online return), every tax figure is an estimate, and two areas are deliberately flagged talk-to-an-accountant: combining the £1,000 property allowance with the interest credit, and your capital-allowance pool specifics. CGT on a sale and VAT are out of scope.

Quick answers

Is my 2024-25 return affected?: No — FHL rules applied through 5 April 2025. The 2025-26 year is the new world.
My let made a loss under the new rules — can I set it against my salary?: Almost certainly not (box 42 is limited to agricultural and capital-allowance cases). It carries forward against future property profits.
My finance-cost credit came out as £0 — is that wrong?: Probably not. The credit is capped at 20% of the lowest of three amounts, so a low-profit year can genuinely produce £0, with the unrelieved interest carried forward.
I'm thinking of selling.: CGT is where the remaining big money moves: business-asset reliefs are gone for disposals from 6 April 2025, subject to transitional rules and an anti-forestalling rule reaching back to 6 March 2024, and residential CGT has its own 60-day reporting deadline. Take advice before exchanging contracts.
Do I have to file at all?: If your property income before expenses is over £1,000 and you're not already in Self Assessment, tell HMRC by 5 October 2026 (gov.uk).