Capital allowances on holiday lets after 2025

How capital allowances on holiday lets work after April 2025

Furnished holiday lettings no longer have their special capital allowances treatment, which ended for periods of account commencing on or after 6 April 2025 for Income Tax and for accounting periods commencing on or after 1 April 2025 for Corporation Tax, and there are transitional arrangements. Whether a let property still has scope for capital allowance claims now turns largely on whether the items are for use in a dwelling-house, as the next section explains.

Before the repeal, FHLs were treated in the same way as a trade for capital allowances, and FHL businesses were entitled to allowances on plant and machinery such as the furniture and white goods within the property. Non-FHL property businesses did not and still do not qualify for capital allowances on these items.

Can I claim capital allowances on a rental property?

Expenditure on the provision of plant or machinery for use in a dwelling-house is not qualifying expenditure for a UK property business, an overseas property business or the special leasing of plant or machinery. This rule, in section 35 of the Capital Allowances Act 2001, is the main reason a former holiday let now sits differently.

Where an asset is provided partly for use in a dwelling-house and partly for other purposes, the cost should be apportioned, and the part apportioned to other purposes qualifies for capital allowances.

The plant or machinery does not necessarily have to be located in a dwelling-house to be for use in it: ground-mounted solar panels in the garden of a let house, where the electricity is used in that house, will not qualify.

A dwelling-house takes its ordinary meaning, and any building, or part of a building, that affords the facilities required for day-to-day private domestic existence is treated as one. For items that do qualify, the guide to the Annual Investment Allowance covers how that allowance works.

What are the changes to the holiday let tax rules?

The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and Capital Gains Tax, and for accounting periods commencing on or after 1 April 2025 for Corporation Tax and Corporation Tax on chargeable gains. ^[1]

For capital allowances, the practical effect is the loss of the trade-style treatment described above, and HMRC's manual refers to transitional arrangements at CA20025.

Reporting still matters. Income from property needs to be declared on a Self Assessment tax return if over £1,000 was earned from sources such as renting out property in the UK or overseas. ^[3] HMRC's helpsheet HS253 covers the tax rules for furnished holiday lettings, and GOV.UK's property guidance also points to the structures and buildings allowance.

Is capital gains tax due when a holiday let is sold?

The furnished holiday lettings rules stopped applying for Capital Gains Tax in tax years commencing on or after 6 April 2025, so a sale in those years is dealt with without the former FHL treatment.

For a company, the same change applies to Corporation Tax on chargeable gains for accounting periods commencing on or after 1 April 2025.

On the capital allowances side, selling items on which allowances were claimed can also have tax effects, and HMRC's helpsheet HS252 covers capital allowances and balancing charges.

The yearly tax-free amount for capital gains

Its figure is not set out in the sources this guide relies on, so no amount is given here; GOV.UK publishes the current figure for each tax year.

Capital allowances let some or all of the value of an item be deducted from profits before tax is paid. ^[4] It is also separate from the property income allowance mentioned in GOV.UK's Self Assessment property guidance.

Items in let residential buildings that may still qualify

A block of residential flats is not a dwelling-house, although the individual flats in it are dwelling-houses. That distinction is where some scope may remain.

A lift or central heating system serving the common parts of a building containing two or more dwelling-houses does not form part of any dwelling-house. A central heating system serving an individual residential flat does not qualify for plant and machinery allowances.

Central heating serving the whole of a building containing two or more dwelling-houses should be apportioned between the common parts, where allowances are available, and the flats, where they are not.

In a house in multiple occupation, shared areas such as hallways, stairs and landings are part of the dwelling-house, so allowances are not available for use in those areas.

In HMRC's own example, a landlord's new cookers for a block of flats do not qualify because they are for use in dwelling-houses, while a communal fire alarm serving the shared areas falls outside the prohibition. ^[2] Where residential property is let, a table or a lift in the entrance hallway of a block of flats is given as an example of what can be claimed. ^[4]

Vehicles used in a letting business are a separate topic, covered in the guide to capital allowances on cars.