Act Now: Maximise Tax Reliefs Before FHL Rules Change

Changes to Furnished Holiday Let (FHL) Tax Benefits

The beneficial tax regime for landlords operating furnished holiday lets (FHLs) is set to end on 5 April 2025. From the 2025/26 tax year onward, these properties will be treated like standard residential rentals. While this change removes the need to meet stringent letting and availability conditions (except for business rates purposes), it also means losing access to valuable capital gains tax (CGT) reliefs. However, landlords still have a short window to take advantage of these reliefs before the deadline.

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (BADR) provides a significant tax advantage by reducing the CGT rate on eligible gains up to a lifetime limit of £1 million.

Under the FHL tax regime, unincorporated landlords who meet the qualifying conditions can claim BADR when disposing of their properties. The rules allow claims for disposals made within three years of ceasing the FHL business.

Under transitional provisions, if a landlord meets the conditions for BADR and ceases their FHL business before 6 April 2025, they will have three years to sell the properties and benefit from the reduced CGT rate.

This is a strategic opportunity—landlords who close their FHL business on or before 5 April 2025 and sell the properties within the three-year timeframe will qualify for BADR. However, for BADR to apply, the business must fully cease. If a landlord owns multiple FHL properties and sells only some, the business remains active, and the relief will not be available.

Why Acting Before 6 April 2025 Matters

Ceasing the FHL business before the deadline and securing BADR could result in substantial tax savings, especially if the properties have appreciated significantly in value. The tax savings depend on the timing of the sale:

• If sold in 2024/25: BADR applies a 10% CGT rate, with potential tax savings of up to £140,000.
• If sold in 2025/26: The CGT rate increases to 14%, reducing the maximum savings to £100,000.
• From 6 April 2026: The CGT rate further rises to 18%, lowering the relief benefit to £60,000.

Gift Holdover Relief: A Tax-Efficient Transfer

Another relief that remains available until 5 April 2025 is the Gift Holdover Relief, which allows CGT on gifted business assets to be deferred by transferring the gain to the recipient. When a furnished holiday let is gifted—particularly to family members—this relief ensures that the recipient inherits the property at a lower base cost while the CGT liability is postponed.

For this relief to apply, the transaction must take place before 6 April 2025, and both parties must agree to the claim. This option can be an effective way to pass a holiday let on to the next generation while managing tax liabilities.

Final Thoughts

With the FHL tax advantages ending soon, landlords must act swiftly to capitalise on existing reliefs. Whether selling properties or gifting them, making informed decisions before 5 April 2025 can lead to significant tax savings. Consulting a tax professional to explore the best course of action is highly advisable.

Partner Note: TCGA 1992, Pt. V, Ch. II, 3A.