The favourable tax regime that applies to landlords letting furnished holiday accommodation comes to an end on 5 April 2025. For 2025/26 and later tax years, furnished holiday lets will be treated in the same way as other residential lettings. While this will absolve the landlord from the need to hit letting and availability targets (other than the less onerous ones needed for business rates purposes), the ability to benefit from valuable capital gains tax reliefs will also be lost. However, there remains a very limited window in which to access these reliefs.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) is a valuable relief that reduces the rate of capital gains tax payable on the disposal of a qualifying asset on gains up to the lifetime limit of £1 million.

Under the tax regime for furnished holiday lets that applies until the end of the 2024/25 tax year, an unincorporated landlord is able to benefit from BADR as long as the associated conditions are met. The rules allow BADR to be claimed on disposals of business assets made within three years of the date on which the business ceased.

Under the transitional rules that apply to furnished holiday lettings, as long as the landlord met the conditions for BADR in relation to a FHL business that ceased prior to 6 April 2025, the landlord has three years in which to dispose of the business assets and claim the relief.

This is a good deal. As long as the landlord ceases their FHL business on or before 5 April 2025, and sells their properties within three years of the cessation date, they will benefit from the reduced rate of capital gains tax applying to gains eligible for BADR. However, it is important to note that the business must cease; the relief does not apply if a landlord has a number of furnished holiday lets and sells some but not all of them. In this scenario the business would be ongoing, albeit with less properties.

Ceasing the business prior to 6 April 2025 and securing BADR on the disposal of the properties may be particularly attractive where the properties are pregnant with gains, as the ability to benefit from BADR can deliver significant savings. The exact amount of the savings depends on the date of disposal. Where the disposal takes place in 2024/25, the capital gains tax rate is 10% where BADR applies (offering potential savings of up to £140,000). The rate increases to 14% for qualifying disposals in 2025/26 (and the potential savings fall to £100,000). The rate is further increased to 18% from 6 April 2026, reducing the potential value of the relief to £60,000.

Gift holdover relief

Gift holdover relief allows the gain that would arise on the gift of business assets to be held over, reducing the recipient’s base cost. Where the disposal is to a

connected person, the gain would be computed by reference to the market value of the property. Holdover relief is very useful here, as where the property is gifted, there are no proceeds from which to pay the tax. The relief must be jointly claimed by both parties. The gift of the furnished holiday let must be made before 6 April 2025 to benefit from this relief. Making use of the relief can be a good way to pass on a holiday let to the next generation.