There are several tax advantages of owning a furnished holiday let. One of the most important benefits is that Capital Gains Tax Relief is available, including Business Asset Rollover Relief and Business Asset Disposal Relief (BADR).
WHAT IS BUSINESS ASSET ROLLOVER RELIEF?
There are some benefits to having a furnished holiday let rather than a standard buy-to-let. If you have a furnished holiday let, you could potentially use the Business Asset Rollover Relief (BARR) when purchasing and investing in property.
The benefit of using BARR is that it allows the landlord to sell one property and invest in another without incurring an immediate charge for Capital Gains Tax. The gain is instead ‘rolled over’ and the charge is deferred.
Business Asset Rollover Relief is available on the disposal of a qualifying business where some or all of the proceeds are being used to purchase a new asset.
CRITERIA AND CONDITIONS
To qualify for the Business Asset Rollover Relief scheme:
- The old asset and the new asset must be used in the same business
- The new asset must be bought in the period running from one year before the sale or disposal of the old asset to three years after
- The business must be trading when the old asset is disposed of and the new asset is acquired
Leo runs a furnished holiday lettings business and owns a holiday cottage in St Ives. He purchased it in 2010 for £150,000 and sells it in June 2021 for £400,000 (net of costs), realising a gain of £250,000. Three months later, he buys a new holiday let in Padstow for £450,000. He claims Business Asset Rollover Relief, deferring the Capital Gains Tax on the sale of the St Ives property.
The base cost of the Padstow property is £200,000, being the cost of £450,000, less the rolled-over gain of £250,000.
Ryan has a buy to let property. He also purchased it in 2010 for £150,000 and sold it in June 2021 for £400,000 (net of costs) realising a gain of £250,000. He plans to buy a buy-to-let in a different location. However, unlike Leo, he is unable to claim Business Asset Rollover Relief and must pay the associated Capital Gains within 30 days of the sale completion. If he is a higher rate taxpayer, and assuming his Capital Gains Tax annual exempt amount of £12,300 is available, he will have a Capital Gains Tax bill of £66,556 (28% (£250,000 – £12,300) to pay, reducing the proceeds that he has available for reinvestment to £333,444. By contrast, Leo has the full proceeds of £400,000 available to reinvest.
WHAT IS PARTIAL RELIEF?
Partial relief may be available if only part of the proceeds from the sale of the old property is reinvested in the new property.
Layla has a furnished holiday lettings business. She sells a holiday let for £300,000 realising a gain of £100,000. She buys a new holiday let for £270,000. £30,000 of the gain of £100,000 is immediately chargeable to Capital Gains Tax. The remaining £70,000 of the gain is rolled over. The base cost of the new holiday let is £200,000, being the cost of £270,000, less the rolled-over gain of £70,000.
HOW TO CLAIM THE RELIEF?
A claim form is available on the below link from HMRC. https://www.gov.uk/government/publications/business-asset-roll-over-relief-hs290-self-assessment-helpsheet/xx
The relief must be claimed within four years from the end of the tax year in which the new asset was acquired or, if later, the old asset was sold.
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