For many years, Furnished Holiday Lets (FHLs) in the UK enjoyed a special tax regime that offered several advantages compared with standard residential buy-to-let properties.
One of the most commonly discussed provisions was the FHL period of grace election, which allowed property owners to maintain FHL status when letting levels temporarily dropped.
However, major tax changes came into effect from 6 April 2025, when the UK government abolished the FHL tax regime entirely.
This means the period of grace election no longer applies for future tax years.
But it may still be relevant for:
- historic tax returns
- transitional planning
- property disposals relating to earlier qualifying periods
This guide explains:
- What the FHL period of grace election was
- How it worked under the previous regime
- What changed from April 2025
- What property investors should consider now
What Was the FHL Period of Grace Election?
Before April 2025, UK furnished holiday lets had to meet strict conditions to qualify for special tax treatment.
The property needed to:
• Be available for letting for at least 210 days per year
• Be actually let for at least 105 days per year
• Avoid long-term occupation exceeding 155 days
If the property failed the 105-day letting condition, the period of grace election allowed the owner to retain FHL status for up to two consecutive years, provided the shortfall was temporary and the property was genuinely available for commercial letting.
This rule protected landlords whose bookings dropped due to circumstances outside their control.
Why FHL Status Was Previously Valuable
Prior to April 2025, qualifying FHLs were treated differently from standard buy-to-let properties.
Some of the key tax advantages included:
• Capital allowances on furniture and equipment
• Profits counted as relevant earnings for pension contributions
• Access to Business Asset Disposal Relief (BADR) in certain circumstances
• Potential access to rollover relief and gift relief
• More favourable treatment for mortgage interest
Because of these benefits, maintaining FHL status was extremely important for many property investors.
The period of grace election helped preserve these advantages during short-term downturns in bookings.
What Changed From April 2025?
From 6 April 2025, the UK government abolished the Furnished Holiday Let regime.
The key consequences are:
1. FHL Properties Are Now Treated Like Standard Rental Property
Holiday lets are now taxed under the same rules as long-term residential property letting.
This means the separate FHL tax treatment has ended.
2. Capital Allowances on Furniture Are No Longer Available
Previously, FHL owners could claim capital allowances on items such as:
• Furniture
• Appliances
• Fixtures
From April 2025, landlords must instead rely on the replacement of domestic items relief, which generally provides less generous deductions.
3. Business Asset Disposal Relief (BADR) No Longer Applies
Before April 2025, FHL owners could potentially claim Business Asset Disposal Relief, reducing Capital Gains Tax on sale to 10%.
This relief is no longer available for holiday lets after the abolition of the FHL regime.
4. Mortgage Interest Rules Align With Buy-to-Let
Interest deductions now follow the same rules as residential property businesses.
Individual landlords receive basic rate tax relief only, rather than full deduction.
5. Pension Contribution Advantages Removed
Previously, profits from an FHL counted as relevant earnings, allowing landlords to make pension contributions based on those profits.
From April 2025, this treatment no longer applies.
What Happens to the Period of Grace Election Now?
Because the FHL regime has been abolished, the period of grace election is no longer available for tax years after April 2025.
However, it may still be relevant for:
• 2024/25 tax returns
• prior tax years under enquiry
• historic compliance reviews
• capital gains planning involving earlier qualifying years
Landlords who previously relied on the election should ensure their earlier claims were made correctly.
Transitional Planning for Holiday Let Owners
If you previously operated an FHL, the abolition of the regime means your property now falls into the standard property business rules.
This may affect:
- tax on future profits
- CGT planning when selling
- pension contribution strategies
- investment structuring
Many landlords are now reviewing whether their holiday let portfolio should:
- remain as short-term rentals
- convert to long-term residential letting
- move into corporate structures
- be sold or restructured
Each option carries different tax consequences.
Example Scenario
Before April 2025:
A landlord owns a cottage in Cornwall used as a furnished holiday let.
In 2023/24, the property met the FHL criteria.
In 2024/25, bookings fell below the 105-day threshold.
The landlord could make a period of grace election to maintain FHL status for that year.
However, from April 2025 onward, the FHL regime no longer applies, so the property will be treated as a normal rental property.
Common Misunderstandings After the Rule Changes
Many landlords still believe the FHL rules remain in place.
Some common misconceptions include:
- Assuming BADR still applies to holiday lets
- Expecting capital allowances on furniture
- Believing the period of grace election is still available
- Thinking holiday lets are taxed differently from buy-to-let
Since April 2025, these assumptions are no longer correct.
What Property Investors Should Do Now
With the removal of the FHL regime, it is important to review your property strategy.
Key questions include:
- Is short-term letting still financially viable?
- Would long-term rental produce a more stable return?
- Should properties be held personally or via a company?
- What is the future Capital Gains Tax exposure?
These decisions are best made with proper tax planning.
Practical Tax Planning Checklist
If you previously owned an FHL, consider reviewing:
✔ historic FHL elections
✔ previous capital allowance claims
✔ CGT planning before disposal
✔ income tax treatment going forward
✔ property portfolio structure
Proper planning can help minimise the impact of the rule changes.
FAQs related to FHL Period of Grace Election
Final Thoughts
The abolition of the Furnished Holiday Let regime marks one of the largest tax changes affecting UK property investors in recent years.
While provisions such as the period of grace election were once important planning tools, they now mainly apply to historic tax years before April 2025.
For many landlords, the focus has shifted toward restructuring property portfolios under the new tax landscape.
Speak to a Property Tax Specialist
If you previously operated a furnished holiday let and want to understand how the April 2025 tax changes affect your property portfolio, our team can help.
At AccounTax Zone, we advise UK property investors on:
- property tax structuring
- CGT planning
- rental business optimisation
- portfolio restructuring
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📩 info@accountaxzone.com
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