If you own a furnished holiday let, important tax changes are on the horizon. Currently, furnished holiday lets qualify for Business Asset Disposal Relief (BADR), allowing property owners to benefit from lower Capital Gains Tax when selling. However, this beneficial rule is set to end in April 2025, leading to a higher tax burden on future property sales.
The good news? By ceasing your furnished holiday let (FHL) business before April 2025, you can lock in the BADR benefits for an additional three years, ensuring you continue to enjoy reduced Capital Gains Tax on your property. Don’t miss this critical window to safeguard your tax savings!
BADR is a tax relief that can reduce the amount of Capital Gains Tax you pay when selling certain business assets, including properties that were used as FHLs.
Capital gains tax rates on residential property sales are either 18% (Basic rate taxpayer) or 24% (Higher or Additional rate taxpayer).
By claiming BADR the tax rate reduces down to 10%. This is currently available for Furnished Holiday Lets but not for much longer.
Furnished holiday lets are currently considered a trade. When a trade ceases you can typically claim BADR so long as the asset is sold within 3 years.
Therefore, to continue to claim the extra 3 years we recommend that you cease trading as a Furnished Holiday Let prior to April 2025.
To qualify as a Furnished Holiday Let the accommodation must meet certain criteria. Therefore to cease trading as a FHL you need to ensure that the criteria is not met.
For example, you could make the property unavailable to let or take on a long term tenant.
Example 1:
David has a property that was an FHL for the tax year 2023/24, but ceased to be an FHL in May 2024. He sells the property on 1st June 2026.
Outcome – David can claim BADR because he sold the property within three years of when it stopped qualifying as an FHL.
Example 2:
David’s situation is the same as in example 1, however this time he sells the property on 1st June 2027.
Outcome – David cannot claim BADR because this sale is outside the three-year window after his property lost FHL status.
Example 3:
David’s property has always been an FHL but decides to cease the FHL on 28th March 2025 and let’s assume he sells the property on or before the 28th March 2028.
Outcome – David can claim BADR on any gain from this sale because it is within the 3 year window.
On the 5th April 2025 all Furnished Holiday Lets cease as the tax rules for FHLs will no longer exist from 6th April 2025.
HMRC are yet to confirm whether BADR will be extended for the usual 3 years (i.e up to 5th April 2028) for these properties or if they will be treated as a residential property for capital gains tax from day one.
This depends on your situation. Capital gains tax is payable on the increase in value of an asset when it is sold.
If your current property valuation hasn’t increased since you purchased the property or you have no intention of selling in the next few years then your expected taxable gain is £nil. As a result, it doesn’t matter if the tax rate is 10% (with BADR) or 24% (without BADR).
In contrast, if you do intend to sell your FHL soon and you know it has increased in value then you should consider how to lock in the 10% BADR tax rate.
The ICAEW has recently released a podcast on Furnished Holiday Lets and the changes in April 2025.
Final Tip
If the intention is to sell your Furnished Holiday Let property within the next 3 years, we would recommend that the FHL ceases to trade before the end of this tax year. This is currently the only confirmed way to extend the 3 years BADR.
Make sure to keep track of these dates, so you don’t miss out on potential tax relief when selling your property! Furthermore, can you bring forward qualifying expenditure you intended to make after 5th April 2025 to an earlier date?
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