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Maximise BADR on sale of the furnished holiday let

December 4, 2024

The favourable tax rules that apply to furnished holiday lettings (FHL) come to an end on 5 April 2025. For many landlords, this may be the time that they decide to bring their FHL business to an end and to sell up.

One of the main benefits of the existing FHL regime is the ability to access Business Asset Disposal Relief (BADR) on the disposal of business assets following the cessation of the business. Currently, the capital gains tax rate where BADR applies is 10%, compared to a rate of 24% for residential property gains once income and gains exceed the basic rate band.

Where a FHL business ceases on or before 5 April 2025, BADR will continue to be available where the properties are disposed of within three years of the cessation date.

Landlords letting furnished holiday accommodation who are thinking of ceasing their holiday letting business are advised to do so prior to 6 April 2025to preserve availability to BADR. Moving over to the new regime and then deciding to sell up may be very costly, particularly if the properties have been owned for some time and are pregnant with gains as the gains will be taxed at residential rates rather than the favourable rates that apply where BADR is available.

Favourable rates

The favourable rates of BADR apply to qualifying gains up to the individual’s lifetime limit. This is set at £1 million. It should be noted that a single limit applies to all gains qualifying for BADR – there is no separate limit for FHLs. However, on the plus side, spouses and civil partners each have their own limit.

Where gains qualifying for BADR are realised prior to 6 April 2025, they are taxed at 10%. This is 14% less than the rate applying to residential gains where income and gains exceed the basic rate band. Landlords looking to bring their FHL business to an end and to sell their properties will be able to benefit from the 10% rate if they dispose of them before the end of the current tax year.

If a disposal in 2024/25 is not feasible, as long as the FHL business ceases before 6 April 2025, BADR will be available as long as the property sales complete within three years of the date of cessation. Again, the sooner the properties are sold the better. Gains benefitting from BADR on properties sold in 2025/26 will be taxed at 14% as a long as they are within the lifetime limit. If the sale is delayed to 6 April 2026 or beyond, the rate rises to 18% where BADR is available.

Landlords keen to benefit from the favourable rates while on offer need to cease their FHL business before 6 April 2025 and sell their properties as soon as possible, and in any event within three years of the date on which their business ceased.

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