With the favourable tax rules for furnished holiday lettings (FHL) set to end on 5 April 2025, many landlords are considering whether now is the time to sell. Acting before the deadline could unlock significant tax savings, particularly through Business Asset Disposal Relief (BADR).
Here’s what you need to know to maximise your tax relief and avoid unnecessary costs.
Why Does the Deadline Matter?
Under the current rules, FHL properties qualify for BADR when sold as part of a business disposal. This allows landlords to pay a reduced capital gains tax (CGT) rate of 10%, compared to the standard rate of 24% for residential property gains once income and gains exceed the basic rate band.
However, from 6 April 2025, the FHL regime will end, and gains on property disposals will no longer qualify for BADR. This could result in significantly higher tax bills for landlords selling properties under the new rules.
What Are the Key Conditions for BADR?
To benefit from BADR:
- Cease Your FHL Business by 5 April 2025
- The FHL business must close before this date to remain eligible for BADR.
- Sell the Properties Within Three Years
- Properties must be disposed of within three years of the business cessation to qualify for BADR.
- Stay Within the Lifetime Limit
- BADR applies to gains up to an individual’s lifetime limit of £1 million.
- Spouses and civil partners each have their own lifetime limit, potentially doubling the available relief.
Favourable Rates Are Changing
The tax rates under BADR are increasing in stages:
- Before 6 April 2025: Gains are taxed at 10%, offering the best possible savings.
- 6 April 2025 to 5 April 2026: Gains are taxed at 14%.
- From 6 April 2026: Gains are taxed at 18%—still lower than residential CGT rates but less advantageous.
The earlier you act, the more you stand to save. For example, a landlord selling properties before April 2025 could save 14% per £1 of gain compared to standard residential CGT rates.
How Should Landlords Prepare?
- Assess Your Portfolio
- Identify FHL properties with significant gains and consider the financial impact of selling under the current regime.
- Plan Your Cessation Date
- To access BADR, your FHL business must close by 5 April 2025.
- Sell Sooner Rather Than Later
- Selling before April 2025 ensures access to the 10% rate. If this isn’t possible, aim to sell within three years of cessation to keep BADR eligibility.
- Consult an Expert
- Timing is critical. Work with a tax advisor to structure your cessation and sales strategy for maximum benefit.
How Can Jon Davies Accountants Help?
Selling your FHL properties and ceasing your business requires careful planning to maximise tax efficiency. At Jon Davies Accountants, we’ll help you:
- Calculate your potential gains and BADR eligibility.
- Plan your cessation and sale strategy to take advantage of the 10% tax rate.
- Navigate the complexities of the upcoming changes.
💡 Contact Jon and the team today to ensure you make the most of your FHL disposal before the favourable tax rules end.
What’s your plan for your FHL properties? Let us know if you’d like personalised advice!
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