From 6 April 2025 onwards, furnished holiday lettings are treated for tax purposes in the same way as other residential lets, and residential lets and furnished holiday lets owned by the same person (or same persons) form part of the same property rental business.

Prior to 6 April 2025, furnished holiday lettings had their own regime. Under these rules, losses from furnished holiday lettings could only be carried forward and set against future profits from furnished holiday lets – they could not be set against profits from residential lets. Likewise, losses on residential lets could not be offset against profits from furnished holiday lets. However, within each stream, losses on one property are automatically offset against profits from another property in calculating the overall rental profit or loss for that stream.

All this changes for 2025/26 and beyond as furnished holiday lets and residential lets are now all in the same pot and the profit or loss is calculated on a global basis for all residential properties regardless of whether they are let on longer lets or as holiday accommodation. The profit or loss for the property rental business is simply found by deducting total expenses from total rental income; there is no need to compute the profits or loss on a property-by-property basis. This means that, for example, if a loss is made on a furnished holiday let in a tax year, it is automatically relieved against profits made in respect of other properties in the portfolio.

Example 1

Leo has two properties that he lets as long-term residential lets and a third property which he lets as a holiday cottage. In 2025/26, rental income and expenses in respect of each property are as shown below. He also incurs general expenses of £2,700 in running his property rental business.

Property Rental income Expenses Profit (Loss)

1. Residential let £20,000 £3,200 £16,800

2. Residential let £24,000 £2,700 £21,300

3. Holiday let £6,000 £7,400 (£1,400)

Total £50,000 £13,300 £36,700

Leo’s overall profit for his property rental business is £34,000 (rental income of £50,000, less property-specific expenses of £13,300 and general expenses of £2,700). The loss on the holiday let is automatically relieved against the profit on the residential lets in the calculation of the overall profit – relief does not have to be claimed.

Brought forward losses

Where a landlord had unrelieved losses on their furnished holiday lets as at 6 April 2025, the losses can be carried forward and set against profits from the merged property business comprising residential and holiday lets. As furnished holiday lets

are no longer treated differently to other residential lets, relief for losses is not restricted to profits let as holiday lets. This may mean that where a landlord letting holiday lets also has residential lets, relief may now be available for losses which could not be relieved previously due to insufficient profit on the holiday lets.

Example 2

In 2024/25, Mary makes a profit of £12,000 from residential lets. She also makes a loss of £3,000 on her holiday let. She has previous unrelieved losses of £7,000 on her holiday let. In 2024/25, different rules apply to residential lets and holiday lets. This means Mary must pay tax on the profit of her residential lets of £12,000. She cannot set the loss from the holiday let against this. Instead, the losses from her holiday let of £10,000 are carried forward.

For 2025/26, the holiday let is treated as a residential let, and her profit for the year is £13,000. She is able to set off the brought forward losses of £10,000 from her holiday let, reducing her taxable profit in 2025/26 to £3,000.