FHL Abolition 2025/26: How London Landlords Can Recover Lost Tax Benefits Through Serviced Accommodation

The FHL Tax Regime Is Gone. Now What?

If you're a London landlord who relied on Furnished Holiday Let status to claim capital allowances, full mortgage interest deductions, and pension-relevant earnings, today marks a turning point. As of 6 April 2025, the FHL tax regime has been officially abolished for the 2025/26 tax year onwards. This isn't a rumour or a consultation. It's done.

For many property investors, the financial impact is significant. Some landlords are looking at thousands of pounds in additional tax liability per year. But here's the good news: if you restructure your serviced accommodation operations correctly, particularly by targeting the corporate and business travel market, you can potentially recover many of those lost advantages. Let's walk through exactly how.

Understanding What You've Lost

Before we talk solutions, let's be clear about what the FHL abolition actually takes away:

• Capital allowances on furniture, fixtures, and equipment are no longer available for properties that were previously classified as FHLs. You're now limited to the same replacement of domestic items relief available to standard residential landlords.
• Mortgage interest relief reverts to the 20% tax credit restriction that has applied to standard buy-to-let properties since 2020. If you're a higher-rate taxpayer, this is a painful hit.
• Pension-relevant earnings from FHL income no longer count, which means reduced capacity for tax-efficient pension contributions.
• Capital Gains Tax reliefs such as Business Asset Disposal Relief and rollover relief are gone for former FHL properties.

The underlying message from HMRC is clear: if your property operation looks like a passive rental, it will be taxed like one. But if it looks and operates like a genuine trading business, a different set of rules applies.

Restructuring as a Trading Business: The Corporate Lettings Route

Here's where things get interesting for London landlords. The key to recovering lost tax advantages lies in establishing your serviced accommodation as a genuine trade rather than a property rental business. And one of the most effective ways to do this in London is by targeting the corporate and business travel market.

What Makes a "Genuine Trade"?

HMRC looks at several factors when determining whether a serviced accommodation operation constitutes a trade:

• Additional services provided beyond simply offering a furnished space. Think regular cleaning, linen changes, welcome packs, concierge services, 24/7 guest support, and managed check-in processes.
• Active management involvement, including marketing, dynamic pricing, guest vetting, and ongoing property maintenance.
• Short average stay lengths with regular guest turnover, indicating hotel-like operations rather than passive tenancy.
• Business infrastructure such as booking systems, professional photography, multi-platform listings, and dedicated staff or management partners.

The more your operation resembles a hospitality business, the stronger your case for trading status. This is exactly why working with a professional management company like Airhosts can be so valuable. Their operational model naturally ticks many of these boxes by default.

Tax Benefits of Trading Status

Once HMRC accepts your operation as a trade, the picture brightens considerably:

• Full capital allowances on furnishings, equipment, and property improvements return to the table.
• Mortgage interest can potentially be deducted as a genuine business expense rather than being restricted to the 20% tax credit.
• Wider business expenses become allowable, including professional management fees, cleaning costs, platform commissions, insurance, utilities, and marketing spend.
• Pension contributions can again be funded from trading profits.
• Business rates rather than council tax may apply, which in many London boroughs actually works out more favourably, especially with Small Business Rates Relief potentially reducing your liability to zero.

Why Corporate Lettings Strengthen Your Position

London's corporate travel market is enormous. With businesses constantly seeking alternatives to expensive hotels for relocating staff, project teams, and visiting executives, serviced apartments in zones 1 to 4 are in strong demand. Corporate bookings tend to be higher value, more predictable, and involve formal service agreements that further evidence your trading activity.

When your property hosts a consulting firm's project team for a six-week engagement, with weekly cleaning, linen service, and a dedicated point of contact, you're clearly operating a hospitality business, not a passive rental.

VAT: The Threshold You Need to Watch

One important consideration when scaling your serviced accommodation operation is VAT. From April 2025, the VAT registration threshold sits at £90,000. If your gross turnover from serviced accommodation exceeds this, you must register for VAT and charge 20% on bookings.

This isn't necessarily a disaster. VAT registration allows you to reclaim VAT on business expenses including management fees, furnishings, renovations, and professional services. For landlords investing in property upgrades, the input VAT recovery can be substantial.

However, if most of your guests book through platforms like Airbnb or Booking.com, adding 20% to your nightly rate could affect competitiveness. This is something to model carefully with your accountant before crossing the threshold.

Pitfalls to Watch For

Restructuring isn't without risks. Here are the key ones:

• HMRC scrutiny is increasing. Simply relabelling your rental as a "serviced apartment" won't cut it. You need genuine, documented evidence of trading activity.
• Planning permission may be required for short-term letting in certain London boroughs, particularly if you exceed the 90-night rule for entire properties without specific consent.
• Consistency matters. If you operate some months as a short-term let and others as a standard tenancy, your trading status argument weakens.
• Professional advice is essential. Tax structuring at this level requires a specialist property accountant, not a general high-street firm. The cost of getting it wrong far outweighs the advisory fees.

The Complexity Problem: Why Most Landlords Need a Simpler Path

Let's be honest. Everything above, from establishing trading status to managing VAT obligations, navigating planning rules, and maintaining the level of service that satisfies HMRC, is complex. It requires time, expertise, and consistent operational delivery.

This is precisely why so many London landlords are choosing professional short-term let management instead of trying to juggle these requirements alone. When you partner with a company like Airhosts, the operational infrastructure that supports your trading status claim is built into the service. Dynamic pricing, professional guest management, regular cleaning schedules, 24/7 support, multi-platform marketing: it all comes as standard.

More importantly, the returns speak for themselves. Professionally managed short-term lets in London consistently outperform traditional buy-to-let yields by 30% to 60%, depending on location and property type. When you combine higher gross income with the broader expense deductions available to a trading business, the net financial advantage becomes compelling.

The Simplest Way to Maximise Your London Property Income

The FHL abolition has changed the rules, but it hasn't eliminated the opportunity. London's short-term rental market remains one of the strongest in Europe, driven by tourism, corporate travel, and a chronic shortage of quality serviced accommodation.

The landlords who will thrive in this new tax environment are those who treat their properties as genuine hospitality businesses, with the services, systems, and professional management to back that up.

Airhosts makes this effortless. From listing optimisation and guest screening to full property care and tax-efficient operational structures, we handle everything so you can enjoy higher returns without the headaches. If you're a London landlord wondering how to respond to the FHL changes, the answer might be simpler than you think. Get in touch with our team today and find out exactly what your property could earn under professional short-term let management.