HMRC collected £16.9 billion in CGT in January 2026, up 69% on the year before. A large part of that was FHL owners who sold before April 2025 and used BADR at 10% for the last time. Those who stayed now face CGT at 24%, a £3,000 exempt amount, and no capital allowances. The first complete self-assessment for 2025/26 lands January 2027.
What Has Happened?
The FHL regime gave short-term let owners a set of tax advantages tied to specific qualifying thresholds. Properties had to be available for commercial let for at least 210 days per year and actually let for at least 105 days. Individual guest stays were capped at 31 consecutive days for the majority of the year. Meet those conditions and the property was treated more like a trading business than a passive investment for several key tax purposes.
The 2024 Spring Budget announced the abolition, effective from 6 April 2025. The Autumn 2024 Budget confirmed it without modification, despite industry lobbying. From that date, all rental income is taxed under standard property income rules, regardless of whether a property is let for two nights or twelve months.
What has gone: capital allowances on furniture, fixtures and equipment. Business Asset Disposal Relief on disposal, which reduced CGT to 10% on qualifying sales. Rollover relief when reinvesting sale proceeds into another qualifying property. The ability to count rental income as relevant UK earnings for pension contribution purposes. Mortgage interest is now restricted to a 20% basic rate credit, matching the rules that apply to standard buy-to-let landlords under Section 24 of the Finance Act 2015.
HMRC collected £16.9 billion in capital gains tax in January 2026, up 69% on January 2025. The January payment date covers gains made in the 2024/25 tax year, which ran to April 2025. Many of those gains were FHL owners who sold before the deadline specifically to use BADR for the last time. CGT at 10% on a qualifying disposal versus 24% on the same property after April 2025 was a straightforward incentive to sell in 2024/25. The owners who did not sell are now in the 2025/26 tax year, the first full year without any FHL reliefs. Self-assessment for that year is due by 31 January 2027.
Why This Matters to UK Property Investors
The BADR removal is what most sellers will feel most acutely. A higher-rate taxpayer who owned an FHL property bought in 2015 for £180,000, now worth £310,000, has a chargeable gain of around £130,000 before costs. Under the old FHL rules, BADR applied on qualifying disposals and CGT was 10%. Under the current rules, £130,000 gain minus the £3,000 annual exempt amount produces £127,000 taxable at 24%: a bill of £30,480. Under BADR the equivalent bill would have been £12,700. The difference is £17,780 in additional tax from a single disposal.
The mortgage interest restriction changes the monthly income picture. A higher-rate taxpayer with a £200,000 interest-only mortgage at 4% pays £8,000 per year in interest. Under FHL rules, that £8,000 was fully deductible against rental income. At a 40% marginal rate, it saved £3,200 in income tax. Under the current rules, a 20% basic rate credit on £8,000 saves £1,600. The effective annual tax increase from that one change is £1,600 per £200,000 of mortgage debt.
Capital allowances mattered most to owners who regularly invested in refitting their properties. A holiday let owner spending £8,000 to £12,000 refurnishing every three or four years could claim those costs against income in the year of expenditure. That timing benefit is gone. Replacement of domestic items relief still applies for replacing individual worn items on a like-for-like basis. The ability to write off a full refit in the year it happens does not.
Combine all three changes and the arithmetic is materially worse than two years ago. For higher-rate taxpayers who were borderline viable under the old rules, the new calculation is likely negative. Many owners have not updated their model since April 2025. The January 2027 self-assessment will be the first complete signal of where they actually stand.
The Risks Investors Need to Understand
Former FHL owners accustomed to annual self-assessment often miss the 60-day CGT payment deadline. When any residential property is sold at a gain, including a former FHL property, the owner must report the disposal and pay CGT within 60 days of completion. This is done through the HMRC UK property account, separately from the annual self-assessment. Missing the 60-day deadline triggers an automatic £100 late filing penalty. A further 5% charge on the unpaid tax applies at six months, and again at twelve. HMRC confirmed that penalties for failing to comply with the 60-day rule roughly doubled in volume during 2024/25. On a CGT bill of £30,000, the six-month penalty alone is £1,500.
The CGT annual exempt amount is now £3,000. It was £12,300 in 2022/23. For most FHL disposals with gains running to six figures, the exempt amount is not a meaningful planning variable. Deferring a sale by twelve months to use two years of exempt amounts saves an additional £720 in tax at 24%. If the reason to sell is that the investment no longer works, £720 is not a valid reason to stay another year.
The short-term let registration scheme expected in England in 2026 adds another compliance obligation for anyone continuing to operate a former FHL property as short-term lets. Registration is free but mandatory once the scheme launches, and platforms including Airbnb and Booking.com will require a registration number before listing a property. Local authorities receive the data and can use it to enforce the 90-day annual limit in London and to identify properties operating commercially without appropriate consents elsewhere. Operating without registration after the scheme commences is an offence.
The transition-period rules are worth understanding for the 2025/26 return. Loss relief from FHL activities carried forward into the first year after abolition was available under specific conditions. By now, that transition window has closed for 2025/26 and 2026/27 runs under fully standard property income rules. If your accountant applied transition reliefs in the 2025/26 return, the 2026/27 figure will look different again. Get that conversation done before the return is filed, not in December.
Where the Opportunity Could Be
The FHL abolition is not driving the same scale of forced-sale pressure I have seen from the Renters' Rights Act in the BTL market. Most FHL owners are not leveraged to a point where a change in tax treatment forces a sale within months. The pressure builds over a full tax year and arrives in January 2027. That is when owners who have not recalculated see the actual bill for the first time. Expect increased FHL disposal activity through the second half of 2026 and into early 2027.
For BTL investors, the relevant question is whether former FHL stock converts well to standard residential letting. The answer is location-specific. Pure coastal tourist towns, St Ives, Padstow, Bowness, Whitby, have thin year-round residential rental demand. The local workforce is seasonal and the tenant pool outside the tourist season is small. Converting a property in those towns to BTL does not produce reliable year-round income or strong yield evidence.
Towns with a genuine employment base alongside their tourist trade are a different calculation. Newquay has year-round residential demand from NHS workers, council employees, and local businesses that do not disappear in October. Scarborough has a similar profile. Inverness has significant government and healthcare employment and active residential rental demand that a well-located former holiday let can serve. A two-bedroom former FHL property in Newquay converting to a £750 per month long-term let produces £9,000 gross annual income. On an acquisition cost of around £175,000, that is a gross yield of just over 5%. Not exceptional, but a defensible BTL case with lower management intensity than the short-term let operation it replaces.
For the motivated FHL seller, the pricing conversation is specific. A property bought in 2017 for £200,000 now worth £310,000 carries a CGT bill of around £26,000 on sale (after the exempt amount, at 24%). Some sellers will price that liability into the asking figure. Others will hold and defer it. A cash buyer or chain-free investor who can complete quickly and deal privately removes the estate agent commission (typically 1.5-2%), the open market uncertainty, and the average 58% fall-through rate that currently characterises UK residential transactions. That removal has a value the seller understands. A private negotiation below the headline asking figure often produces a better net outcome for the seller than waiting six months on the open market and then accepting a similar number from a mortgaged buyer who falls through twice first.
Arsh's Investor View
The FHL regime always felt like a policy anomaly to me. Capital allowances on soft furnishings is a generous concession for what is, in many cases, effectively a second home with occupancy conditions attached. BADR at 10% for what any reasonable HMRC inspector would struggle to classify as an active trading business, in the way a restaurant or a manufacturing operation is active, was too large a preference for residential property to sustain once the government needed revenue. The 2024 Budget announcement did not surprise me.
What I find frustrating is how many owners had nine months of clear notice between the March 2024 announcement and April 2025 and still did not sell. The window to crystallise BADR was precisely defined. A seller who instructed solicitors in January 2025 targeting a March 2025 completion could have done it. Some owners didn't act because a tenant was in situ, or negotiations stalled, or they simply found the decision too hard to make under a deadline. The result is CGT at 24% instead of 10% on the same property and the same gain.
On sell versus convert: I would run the actual net income numbers before deciding. The short-term let overhead is higher than most owners account for in their heads. Platform commission at 15 to 18%, professional cleaning per changeover at £80 to £120, linen service, seasonal maintenance peaks, and management costs during peak periods. A property earning £45,000 gross from short-term lets is not netting £45,000. After real operating costs, net income on a well-run property might be £28,000 to £32,000. A long-term BTL conversion at £12,000 per year gross with £1,200 in agent fees nets £10,800. The gross income gap is large. The net income gap is smaller. In a town where long-term rental demand is real and stable, the conversion case is worth taking seriously rather than dismissing on the basis of headline income alone.
The January 2027 self-assessment is the deadline that matters now. Anyone who has not reviewed their numbers since April 2025 needs to do that in the next few months, not in a December rush. Discovering the tax position for a full year under the new rules the week before the filing deadline is too late to make any decisions. A review now gives you the option to act on it before the year closes.
How Property Investor App Can Help
Property Investor App lists buy-to-let opportunities across UK cities and coastal towns from direct sellers and sourcing agents, with yield data and asking price included. For former FHL owners researching what long-term rental income looks like in their area before deciding whether to convert or sell, PIA gives visibility of what comparable BTL properties achieve in your postcode and what investors in your market are currently paying. For BTL investors looking at former holiday let stock as acquisition targets, PIA's deal feed covers markets where FHL-to-BTL conversion activity is picking up, with direct seller listings from landlords who have done the updated calculation and want a quick, private sale.
Key Takeaways
- The Furnished Holiday Lettings regime was abolished from 6 April 2025. Around 127,000 qualifying FHL owners in the UK lost access to capital allowances on furniture and equipment, Business Asset Disposal Relief (CGT at 10% on disposal), full mortgage interest deductibility, and the ability to count rental income as relevant UK earnings for pension contributions. All short-term let income is now taxed under standard rental property rules.
- CGT on the sale of a former FHL property now runs at 18% for basic-rate taxpayers or 24% for higher and additional-rate taxpayers. The annual CGT exempt amount is £3,000 for 2025/26. HMRC collected £16.9 billion in CGT in January 2026, up 69% on the previous year, reflecting a surge of FHL owners who sold in 2024/25 to use BADR at 10% before abolition.
- Mortgage interest is now restricted to a 20% basic rate credit, matching standard BTL rules under Section 24. A higher-rate taxpayer with £200,000 of interest-only debt at 4% now saves £1,600 in tax from that interest, rather than the £3,200 they saved under FHL rules. An increase in effective annual tax cost of £1,600 per £200,000 of mortgage.
- The 60-day CGT payment deadline applies to all residential property disposals, including former FHL sales. Miss it and an automatic £100 penalty applies, with 5% charges on unpaid tax at 6 and 12 months. Penalties for missing the 60-day deadline roughly doubled in volume during 2024/25.
- The first full tax year under the new rules (2025/26) ended 5 April 2026. Self-assessment is due 31 January 2027. Owners who have not recalculated since April 2025 should review their numbers before autumn 2026, not in a December rush.
- Conversion to standard BTL is viable in locations with genuine year-round residential demand (employment base, healthcare, education). Pure tourist towns such as St Ives, Padstow and Bowness have thin long-term rental markets. Short-term let operating costs (platform fees 15-18%, cleaning £80-120 per changeover) are higher than standard BTL management fees of 8-10%, so the net income gap between STL and BTL is smaller than gross figures suggest.
Frequently Asked Questions
What tax reliefs did furnished holiday lets have before April 2025?
Qualifying FHL properties gave owners five main tax advantages over standard rental property. Capital allowances on furniture, fixtures and equipment let owners write off the full cost of a property fit-out against income in the year of purchase. Business Asset Disposal Relief reduced CGT to a flat 10% on a qualifying disposal, against the 18-24% that applies to standard residential property. Rollover relief allowed gains from selling one FHL to be deferred by reinvesting into another qualifying property without triggering CGT on the first sale. Gift hold-over relief was available on transfers to family members. Rental income also counted as relevant UK earnings for pension contribution purposes, so FHL owners could make pension contributions based on their rental receipts and receive the associated tax relief. To qualify, a property had to be available to let at least 210 days per year and actually let for at least 105 days, with no single letting exceeding 31 days in most cases.
What is the CGT rate when selling a former FHL property in 2026?
From 6 April 2025, the sale of a former FHL property is treated as a standard residential property disposal. Business Asset Disposal Relief no longer applies. Capital gains are taxed at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers, after deducting the annual CGT exempt amount of £3,000 for 2025/26. The taxable gain is calculated as net sale proceeds minus the original acquisition cost, plus stamp duty paid on purchase, legal fees on both sides, and capital improvements (not repairs or maintenance costs). The gain must be reported and the tax paid within 60 days of completion, through the HMRC UK property account. On a £130,000 net gain, a higher-rate taxpayer pays £30,480 at 24% after the £3,000 exempt amount.
Should I convert my holiday let to a standard buy-to-let?
The conversion case is strongest in towns with genuine residential demand from year-round employment, healthcare, education or commuter access. Pure tourist locations such as St Ives, Padstow, Whitby and Bowness have thin long-term rental markets with limited tenant pools outside the tourist season. In those locations, converting to BTL typically produces lower income without a proportionate reduction in management complexity. In towns with an employment base alongside tourism (Newquay, Scarborough, Inverness, Falmouth), there is an active local tenant pool and yield evidence to support the conversion. The net income comparison matters more than the gross figures: a short-term let earning £45,000 gross carries significant operating costs (platform fees 15-18%, cleaning per changeover, seasonal maintenance). After those costs, net income may be £28,000-32,000. A long-term BTL at £12,000 gross per year with standard agent fees nets around £10,800. The gap is smaller than the headline income figures suggest, and the management intensity is substantially lower.
Is there a short-term let registration scheme in England in 2026?
A mandatory national registration scheme for short-term lets in England is expected to launch in 2026 via an online portal. Registration is free for hosts but is required annually, and platforms including Airbnb and Booking.com will require a valid registration number before accepting new listings. Local authorities receive the data and can use it to enforce the 90-day annual limit in London (above which change-of-use planning permission is required) and to identify properties operating commercially without appropriate consents elsewhere. Failure to register and operate without a number is an offence once the scheme commences. Scotland already operates a short-term let licensing scheme requiring a licence from the relevant local authority. Wales operates a separate national registration requirement for all holiday accommodation. Former FHL owners continuing to operate as short-term lets after April 2025 need to register under the scheme applicable to their property location.
When do you have to pay CGT after selling a rental property?
UK residents who sell a residential property at a gain must report the disposal and pay CGT within 60 days of the completion date. This is done through the HMRC UK property account, not the annual self-assessment (though the disposal must also appear on the self-assessment return for the relevant year). Missing the 60-day deadline triggers an automatic £100 late filing penalty. A further 5% of the outstanding tax applies at six months, and another 5% at twelve months. HMRC confirmed that penalties for missing this rule roughly doubled in volume during 2024/25. For a CGT bill of £28,000, the six-month charge is £1,400. Former FHL owners who complete a sale expecting to settle the CGT in the January self-assessment are exposed to all three penalty tiers.
