Maximizing Tax Benefits: Transfer Your Holiday Let Before 5 April 2025

The advantageous tax regime for furnished holiday lettings (FHLs) is set to end on 5 April 2025. After this date, landlords of FHLs will lose access to valuable capital gains tax (CGT) reliefs, including gift hold-over relief. If you’re considering passing on your holiday leave, acting before the deadline could save you significant tax liabilities.

Understanding Gift Hold-Over Relief

Gift hold-over relief is a CGT mechanism that allows tax deferment due to the gifting of business assets. The CGT that would otherwise arise on the transfer is postponed by claiming this relief until the recipient sells or disposes of the asset. This is achieved by reducing the transferee’s base cost by the deferred gain amount.

Key Eligibility Criteria:

• The individual transferring the asset must be:
  • A sole trader,
  • A business partner, or
  • Holding at least 5% voting rights in a personal company.
• The gifted asset must be actively used in the business or personal company.
• Both transferor and transferee must jointly claim the relief via a formal form submitted with their Self-assessment tax returns.

Relevance to Furnished Holiday Lettings

Furnished holiday lets have historically benefited from favorable tax treatment. From an inheritance tax perspective, gifting a property during one’s lifetime can be beneficial. If the donor survives seven years post-gift, the asset is excluded from their estate for inheritance tax purposes.

Without gift hold-over relief, however, a CGT liability arises on the market value of the asset at the time of gifting. This poses a challenge, especially when no proceeds are received from the gift to cover the tax liability. Gift hold-over relief resolves this issue by deferring the CGT liability until the recipient sells the asset.

For example, this relief is especially useful for landlords wishing to transfer their holiday let to a family member, such as a son or daughter. However, this opportunity will no longer be available after 5 April 2025, as holiday lets will then be treated like other residential properties, ineligible for hold-over relief.

Action Plan:

• Ensure the transfer of your holiday let occurs on or before 5 April 2025.
• Complete the necessary forms to claim the relief jointly with the recipient.

Example Scenario

Betty’s Holiday Let Transfer

Betty has owned a holiday let cottage since 2004, purchased for £120,000. The cottage is now valued at £380,000. As she plans to retire, Betty wants to gift the property to her daughter, Lucy.

• Before 6 April 2025:
  By transferring the property before the deadline and claiming gift hold-over relief, Betty avoids paying CGT on the £260,000 gain. Lucy’s base cost for the property becomes £120,000, reflecting the original purchase price minus the deferred gain. CGT will only be due when Lucy decides to sell.
• After 5 April 2025:
  If Betty delays the transfer, she loses access to the relief. Assuming she’s a higher-rate taxpayer and has used her annual exempt amount, Betty would owe £62,400 in CGT (24% of £260,000) within 60 days of the gift completion.

Key Takeaways

• Act Now: Transferring your holiday let before 5 April 2025 ensures access to gift hold-over relief.
• Plan Ahead: Engage with a tax professional to understand your eligibility and complete the necessary paperwork.
• Avoid Financial Strain: Use the relief to defer CGT liabilities and pass on your property without immediate tax burdens.

The clock is ticking on this valuable tax-saving opportunity. Don’t miss out—plan your transfer today to maximize the benefits.

Reference: TCGA 1992, s. 165.

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