Holiday Let Owners: Could Your Previous Losses Reduce Your Property Tax Bill?

The special tax regime for furnished holiday lettings ended in April 2025, but there is some welcome news for landlords. Previously unused holiday letting losses may now be available to reduce taxable profits from other rental properties.

For many years, furnished holiday lets enjoyed a different tax treatment from traditional residential rental properties.

However, the government abolished the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025 for Income Tax purposes.

The change removed several advantages previously available to qualifying holiday accommodation businesses.

But while much of the attention has focused on the loss of favourable tax reliefs, one aspect of the changes could actually benefit some property owners.

Landlords with unused losses from their former furnished holiday letting businesses may now be able to offset those losses against profits from their wider property portfolio.

For some investors, that could mean a worthwhile reduction in their Income Tax liability.

What changed in April 2025?

Before 6 April 2025, qualifying furnished holiday lets were treated as a separate category of property business for various tax purposes.

This provided access to certain reliefs that were not ordinarily available to traditional residential landlords.

However, the system also had restrictions.

One of the most important concerned losses.

If a furnished holiday letting business made a tax loss, that loss generally had to be carried forward and used against future profits from the same FHL business.

It could not normally be offset against profits from ordinary residential rental properties.

This meant a landlord could be paying tax on profitable buy-to-let properties while also carrying forward unused losses from holiday accommodation.

The abolition of the FHL regime has changed this position.

How are holiday letting profits treated now?

From 6 April 2025, income and expenditure from former furnished holiday lets generally form part of the owner’s wider UK property business.

This means that holiday accommodation and ordinary UK rental properties owned by the same taxpayer in the same capacity are normally considered together when calculating property business profits.

For example, a landlord might own:

• Two traditional buy-to-let flats.
• A holiday cottage in Pembrokeshire.
• A short-term rental apartment in Cardiff.
• A commercial rental property.

Where these properties belong to the same UK property business, their income and allowable expenses are generally combined to calculate the overall taxable property profit.

The important consequence is that qualifying losses carried forward from the former FHL business can now be available against profits from the combined UK property business.

Example: A landlord with £12,000 of unused holiday letting losses

Let’s look at a practical example.

Georgina owns four properties.

Two are flats let to long-term tenants, while the other two are holiday cottages advertised through Airbnb.

Her rental flats have consistently generated profits, but her holiday accommodation business has experienced some difficult years.

As at 6 April 2025, Georgina has £12,000 of unused losses carried forward from her former furnished holiday letting business.

During the 2025/26 tax year, her property income and allowable expenses are as follows:

Property	Rental income	Expenses	Profit/(loss)
Flat 1	£20,000	£4,000	£16,000
Flat 2	£12,000	£2,500	£9,500
Holiday cottage 1	£16,000	£8,500	£7,500
Holiday cottage 2	£5,000	£7,000	(£2,000)
Total	£53,000	£22,000	£31,000

Georgina’s total profit for the 2025/26 tax year is £31,000.

Under the previous FHL rules, her £12,000 of brought-forward holiday letting losses would have been restricted to future profits from the qualifying FHL business.

However, following the abolition of the FHL regime, those losses can now be used against the combined UK property business profit.

The calculation becomes:

Calculation	Amount
Total property business profit	£31,000
Less: Brought-forward FHL losses	(£12,000)
Taxable property profit	£19,000

Instead of paying Income Tax on £31,000 of rental profits, Georgina is taxed on £19,000, assuming all the losses remain available and the stated figures are allowable for tax purposes.

How much tax could this save?

The potential tax saving depends on the landlord’s marginal Income Tax rate.

For illustrative purposes, using the £12,000 of losses could reduce an individual’s Income Tax bill by:

Marginal Income Tax rate	Potential tax saving
20%	£2,400
40%	£4,800
45%	£5,400

These figures assume the full £12,000 deduction reduces income taxed at the stated rate. The actual saving depends on the taxpayer’s circumstances, including the applicable income tax bands and allowances.

For property owners who have accumulated substantial holiday letting losses over several years, the opportunity could therefore be valuable.

What if you only own holiday lets?

The new rules can still be relevant.

If you operate several holiday properties, their income and allowable expenditure will generally be combined as part of your property business.

Any available losses from previous years can be carried forward and used against future qualifying property business profits.

Where profits are insufficient to absorb all the losses, the unused balance may continue to be carried forward, subject to the usual rules.

What if you also own commercial rental property?

This is another important area.

For an individual who owns UK residential, holiday and commercial rental properties as part of the same UK property business, the income and allowable expenses are generally brought together.

This means losses originating from former furnished holiday lets can potentially be offset against the profits generated by commercial rental property.

The fact that a property is no longer used for holiday accommodation does not necessarily mean the historic FHL losses have been lost.

However, UK and overseas property businesses remain separate for these purposes.

What if your holiday property is overseas?

There are separate rules for overseas property businesses.

Before abolition, qualifying furnished holiday lettings in the European Economic Area were treated separately from other overseas rental activities.

Following the changes, relevant brought-forward overseas FHL losses can generally be used against profits of the taxpayer’s overseas property business.

However, losses from a former UK furnished holiday letting business cannot simply be offset against overseas rental profits, or vice versa.

It is therefore important to identify where the losses arose and which property business they belong to.

Do the rules apply to limited companies?

Yes, the abolition of the furnished holiday letting regime also affects properties held through limited companies.

For Corporation Tax purposes, the changes took effect from 1 April 2025.

The treatment of company property losses differs from the rules applying to individuals.

Depending on the circumstances, brought-forward losses from the former FHL business may now be available against the company’s wider profits under the applicable Corporation Tax loss relief provisions.

Careful consideration is needed where losses arise in different accounting periods or are subject to particular restrictions.

What about the other tax advantages holiday lets used to enjoy?

Although the changes to loss relief may be beneficial, the abolition of the FHL regime also removed several tax advantages.

These include:

Capital allowances

Former FHL businesses generally no longer qualify for the favourable capital allowances treatment previously available on new furniture, equipment and certain other assets.

Instead, the normal property income rules apply, including replacement of domestic items relief where the conditions are met.

However, existing capital allowance pools may continue to qualify for writing-down allowances under transitional arrangements.

Capital Gains Tax reliefs

Qualifying furnished holiday lettings previously had access to certain business-related Capital Gains Tax reliefs.

These generally ceased to apply following abolition, although transitional provisions may protect some disposals.

Pension contributions

Under the former regime, qualifying furnished holiday letting profits could count as relevant earnings for pension contribution purposes.

Following abolition, ordinary property rental income generally does not qualify as relevant earnings.

Finance costs

For individual landlords, finance costs relating to residential holiday accommodation are now generally subject to the same restrictions that apply to other residential property letting businesses.

This can have a significant effect on the amount of tax payable, particularly where a property is heavily mortgaged.

Don’t overlook historic losses on your tax return

One potential problem is that landlords may simply assume historic FHL losses disappeared when the special regime ended.

That is not generally the case.

The transitional rules specifically allow relevant unused losses to become part of the ongoing property business.

Landlords should therefore review their previous Self Assessment tax returns to establish whether any losses remain available.

Particular attention should be paid to:

• Losses brought forward from tax years before 2025/26.
• Whether the losses arose from UK or overseas holiday accommodation.
• Whether all the properties belong to the same taxpayer and property business.
• Whether losses have already been used against previous profits.
• Whether changes to capital allowances or finance cost relief affect the current year’s calculation.

Good record-keeping is especially important where a property portfolio contains several different types of rental accommodation.

Why the 2025/26 tax return matters

The 2025/26 tax year is the first full Income Tax year following the abolition of the FHL regime.

For landlords who previously reported holiday letting income separately, this means their tax return calculations may look different.

Rather than calculating qualifying holiday letting profits under a separate regime, the relevant income and expenditure are generally included in the wider UK or overseas property business.

Brought-forward losses also need to be correctly identified and applied.

The normal online Self Assessment filing deadline for the 2025/26 tax year is 31 January 2027.

Checking historic losses before preparing the return could therefore prevent landlords from paying more tax than necessary.

How williams lester accountants can help

At williams lester accountants, we work with landlords and property investors to make sure their property businesses are structured and managed as tax-efficiently as possible.

Whether you operate traditional buy-to-let properties, holiday accommodation or a mixture of residential and commercial lets, we can help you understand the financial implications of the current rules.

Our property tax services include:

• Reviewing historic furnished holiday letting losses.
• Preparing property business profit calculations.
• Assessing available loss relief.
• Reviewing finance costs and allowable expenses.
• Preparing Self Assessment and Corporation Tax returns.
• Advising on property ownership and investment structures.
• Helping landlords improve profitability and cash flow.

We believe property tax advice should do more than ensure the correct boxes are completed on a tax return.

It should help property owners understand their financial position and make informed decisions about their investments.

Have you accumulated losses from a holiday let?

If you’ve owned furnished holiday accommodation in previous years, you may have unused tax losses that could now reduce your liability on other rental income.

Those historic losses could be worth more than you realise.

Let williams lester accountants review your property tax position and help you make the most of the reliefs available.

This article provides general information based on the furnished holiday letting rules abolished from April 2025 and the associated transitional provisions. The availability and use of losses depend on individual circumstances and the relevant property business.