Furnished Holiday Lets Abolished 2025: What Scottish Landlords Must Do Now

The furnished holiday let (FHL) tax regime was abolished with effect from 6 April 2025. Scottish FHL owners who benefited from capital allowances, pension contribution eligibility, and Business Asset Disposal Relief on disposal now have their properties treated as ordinary residential lettings. For Scottish taxpayers the transition also means rental profits are taxed at Scottish income tax rates — up to 48% at the top rate.

What the FHL regime provided

Under the old FHL rules, a qualifying short-term holiday let was treated as a trade rather than an investment. Owners could claim capital allowances on furniture, equipment, and fixtures, count rental profits as earnings for pension contribution purposes, and access Business Asset Disposal Relief (10% CGT) on sale. These advantages made the structure popular in popular Scottish tourist destinations such as the Highlands, Loch Lomond, and Edinburgh.

What changes from April 2025

• Capital allowances on furniture and equipment are no longer available; the replacement of domestic items relief (RDIR) applies instead.

• Rental profits no longer count as earned income for pension purposes.

• Business Asset Disposal Relief is no longer available on disposal.

• Section 24 mortgage interest restriction now applies.

• Profits are taxed at Scottish income tax rates, not UK-wide rates.

Transitional issues for Scottish landlords

Where a Scottish FHL owner had unrelieved capital allowance pools, these were extinguished at April 2025 and a balancing allowance or charge may have arisen in 2024/25. Landlords who planned to sell and rely on Business Asset Disposal Relief need to recalculate their CGT position at residential property rates — 18% or 24% — and the 60-day CGT return requirement on UK residential property sales now applies.

Ongoing management of former FHLs

Former FHL properties are now treated as ordinary residential lets. If you let the property on Airbnb or similar platforms, you report income and allowable expenses (excluding finance costs as a deduction) on the property pages of your self-assessment return. Scottish rates apply to profits, and if the property is in Scotland the LBTT and ADS framework applies on future sales or further acquisitions.

Should you sell, restructure, or continue?

The abolition of the FHL regime changes the investment case for many holiday let owners. A landlord who bought primarily for the tax advantages should model the ongoing position carefully: income tax at Scottish rates on profits, Section 24 on mortgage interest, residential CGT rates on sale, and no pension contribution eligibility. Some owners may find that selling sooner rather than later makes financial sense.

Contact Countify's landlord tax team in Glasgow to review your former FHL portfolio and plan the best route forward for 2025/26 and beyond.