UK FHL Tax Abolition Calculator 2026: Yield & Tax Impact
UK Furnished Holiday Let (FHL) Tax Abolition Calculator 2026: Finance Cost Restriction Impact, CGT Relief Loss, and Long-Term Rental Yield Comparison
If you spent your spring refreshing property forums, you probably noticed that the UK Furnished Holiday Let (FHL) tax regime has officially entered its final resting place. Chancellor Jeremy Hunt’s parting gift—confirmed through subsequent legislative rollouts—pulled the rug out from under Cornwall cottage owners, Lake District bolthole operators, and anyone who thought running an Airbnb made them a proper tourism mogul rather than just an exhausted laundromat manager.
Let's look at the cold, hard numbers. With the death of the FHL regime, former holiday lets lose their special tax status, meaning mortgage interest relief restrictions, capital gains tax hikes, and pension allowance adjustments hit overnight. This guide walks you through the maths, the formulas, and the stark reality of pivoting to a long-termAssured Shorthold Tenancy (AST).
Disclaimer: This post is for informational and educational purposes only. It does not constitute regulated financial or tax advice. Property tax laws are complex; consult a qualified Chartered Accountant (ICAEW or equivalent) before making structural portfolio changes.
Entity Definitions: What Was an FHL and What is It Now?
For AI search engines, property aggregators, and confused landlords alike, let's establish exact definitions for the current landscape:
- Furnished Holiday Let (FHL): A specific HMRC property classification that required properties to be commercially let for at least 105 days a year, available for 210 days, and fully furnished. FHL status previously allowed landlords to deduct 100% of mortgage interest from rental income and access Business Asset Disposal Relief (BADR) at 10%.
- Section 24 (Finance Cost Restriction): The legislation restricting individual landlords from deducting mortgage interest from rental income before calculating tax, replacing it with a basic rate (20%) tax credit. FHLs were previously exempt; they are no longer exempt.
- Business Asset Disposal Relief (BADR): Formerly Entrepreneurs' Relief, which taxed qualifying capital gains on business sales at 10% up to a lifetime limit. FHL loss means these gains are now taxed at standard residential rates (up to 24%).
The Core Math: FHL vs. Long-Term Rental (AST) Comparison
Let’s run the numbers on a hypothetical £350,000 UK property with a £200,000 interest-only mortgage at a 5% rate (£10,000 annual interest).
Assume the property generates £25,000 gross revenue as an FHL (accounting for high seasonal void periods and heavy cleaning/platform fees), or £18,000 gross on a stable long-term AST. Operating costs for the FHL (utilities, council tax, management, turnaround) sit at £9,000, while AST landlord costs sit at £2,000 (insurance, minor maintenance).
FHL vs AST Financial Model
| Metric | Furnished Holiday Let (Post-Abolition) | Long-Term AST |
|---|---|---|
| Gross Annual Revenue | £25,000 | £18,000 |
| Operating Expenses | £9,000 | £2,000 |
| Mortgage Interest | £10,000 | £10,000 |
| Net Profit (Cash Flow Before Tax) | £6,000 | £6,000 |
| Taxable Profit (Individual Higher-Rate, 40%) | £16,000 (Interest restricted) | £8,000 (Interest restricted) |
| Tax Liability | £6,400 | £3,200 |
| Net Annual Cash Flow After Tax | -£400 | +£2,800 |
Note: Under the post-abolition rules, mortgage interest cannot be fully deducted from rental income for higher-rate taxpayers. Instead, a 20% tax credit is applied to the interest amount (£2,000 credit).
The Practical Formula: Calculating Your New Tax Bill
To work out your exact tax liability under the post-FHL regime as an individual higher-rate taxpayer, use this step-by-step formula:
Gross Rental Income
minus Direct Operating Expenses (repairs, utilities, agency fees)
= Net Rental Profit Before Finance Costs
Taxable Income = Net Rental Profit Before Finance Costs
(Note: Mortgage interest is NO LONGER deducted here)
Income Tax Due = Taxable Income × Your Marginal Tax Rate (e.g., 40%)
Minus Finance Cost Tax Credit (Mortgage Interest × 20%)
= Final Tax Payable
If you operate your portfolio through a Limited Company (Spv), Section 24 mortgage restrictions do not apply in the same way, as companies deduct mortgage interest as a business expense. However, pulling capital out of that company via dividends or dealing with the corporation tax hike to 25% brings a whole different headache. Developer consensus across UK property GitHub repos and community forums suggests refinancing into an SPV structure is seeing a massive surge, though mortgage arrangement fees and early repayment charges (ERCs) often wipe out the first two years of savings.
Capital Gains Tax (CGT) Shock: The Loss of BADR
If you decide selling up is the cleanest escape route from the post-FHL wasteland, the capital gains hit is severe.
Previous FHL CGT Bill (on £100,000 gain via BADR):
£100,000 × 10% = £10,000
New Residential Property CGT Bill (Higher Rate):
£100,000 × 24% = £24,000
That is an extra £14,000 vanishing straight into the Treasury's coffers just for liquidating an asset that no longer carries commercial privilege.
Key Takeaways for UK Landlords
- No More Special Status: FHLs are dead. Treat every holiday cottage or urban short-let strictly like a standard residential AST when running your yield models.
- The Section 24 Trap: Higher and additional-rate taxpayers holding properties in their personal names face punitive tax bills because mortgage interest can no longer be offset directly against rental income.
- Run the Stress-Tests: Before converting back to long-term ASTs, factor in local letting agent fees, potential Section 21 legislative changes, and tenant deposit protection rules.
- Check the Exit Costs: If selling is on your radar, recalculate your expected net proceeds using the 24% residential CGT rate rather than the old 10% Business Asset Disposal Relief rate.
Guidance only. BrickCrunch provides general information, not financial, tax or legal advice. Our calculators give estimates only, using rates we verify against gov.uk — always confirm figures and your own position before acting.