How to Prepare for the End of the FHL Scheme: Steps to Take Now

The UK government's decision to scrap Furnished Holiday Lettings (FHL) tax benefits from 6 April 2025 is set to shake up the short-term rental market, affecting more than 130,000 landlords.

For years, the FHL scheme has offered significant perks over standard rentals—full mortgage interest deductions, capital allowances and business asset Capital Gains Tax (CGT) reliefs. Even pension contributions benefited with FHL income counted as "relevant earnings."

Now with those advantages disappearing soon, landlords must move quickly to soften the blow.

1. Time to Rethink Your Strategy

When the FHL tax benefits end, landlords will face bigger taxes and lower profits. The biggest hit comes from losing full mortgage interest relief. Right now, landlords can deduct their full mortgage interest from rental income before paying tax. But after the change, they will only get a basic-rate tax credit, meaning those in higher tax brackets will pay much more.

The problem: some landlords will be taxed on "profits" that exist only on paper—not in their actual bank accounts. Experts warn even if rental income covers expenses, tax bills could still take a chunk out of personal savings.

As such, landlords need to act fast—whether by cutting costs, raising rents, filling vacancies faster or upgrading properties to stay profitable.

2. Reassess Your Property Portfolio

Landlords must assess whether their properties will remain profitable under the new tax rules. Without FHL tax benefits, some rentals may no longer generate enough income to justify holding onto them. In such cases, selling or converting them into long-term residential lets—where income is steadier—could be the smarter move.

Property values may also take a hit, especially for those who relied on tax incentives to stay attractive. If selling is on the table, doing so before April 2025 could mean a better tax outcome as current reliefs and exemptions may no longer apply afterwards.

3. Explore Alternative Financing

The cap on loan interest deductions will hit properties with high debt the hardest. To stay profitable, owners can consider refinancing to get better terms or selling underperforming properties to pay down their debt.

Another strategy is to incorporate the property into a company. Experts say this can help landlords continue to get full relief on finance costs. But setting up a company comes with its own tax issues like potential Stamp Duty and CGT. So, it is important to seek expert advice before making any move.

4. Take Advantage of Transitional Provisions

To ease the transition, the government has introduced rules that allow landlords with existing capital allowance claims as of April 5, 2025, to continue claiming under the current system. This gives landlords a chance to make qualifying property improvements before the deadline to maximise their deductions.

Moreover, any historical losses from FHL can still be carried forward to offset future property income, offering some relief against the tax increases ahead.

5. Reevaluate Your Pension Strategy

A less-discussed effect of the FHL changes is how it will affect pensions. FHL income will no longer count as "relevant earnings," which means landlords who rely on FHL profits to contribute to their pensions may need to rethink their retirement plans.

Experts suggest that property investors should review their long-term financial plans. Explore tax-efficient options, like ISAs, to maintain a balanced savings strategy in light of the reduced pension contribution limits.

6. Prepare for Simplified Reporting

A small silver lining is that the end of the FHL scheme will simplify tax reporting. FHL income will be treated the same as other residential rental income, eliminating the need for separate tax calculations. This may reduce administrative burdens, but landlords should still familiarise themselves with the new compliance rules.

Conclusion

The end of the FHL scheme brings a big change for UK landlords. However, by acting early, property investors can lessen any disruptions and adjust to the new tax rules. Important steps can be checking finances, improving property portfolios, looking into financing options and taking advantage of transitional reliefs to stay profitable after April 2025. Getting expert tax advice now will help landlords make the best decisions during this transition.