With the planned abolition of the Furnished Holiday Let (FHL) tax regime in April 2025, owners of FHL properties are facing changes to how their properties are taxed.
So, what are these changes and what will the implications be for claiming Business Asset Disposal Relief (BADR) under the new rules?
Qualifying for BADR as an FHL business
For FHLs to qualify for BADR, they must meet the criteria outlined by the Taxation of Chargeable Gains Act 1992 (the Act), specifically section 241(3A).
This includes ensuring the FHL was used in a qualifying business manner as described in the legislation.
Additionally, under normal circumstances, where an individual ceases their qualifying FHL business activities, they can claim BADR up to three years after the cessation, if:
- The business was owned by the individual throughout the two years ending with the date the business ceases.
- The cessation date is within three years ending with the date of the disposal.
The Implications of the FHL abolition
The repeal of specific FHL provisions by HM Revenue & Customs (HMRC), effective from April 2025 for Corporation Tax and April 6, 2025, for Income Tax and Capital Gains Tax (CGT), does not imply that FHL businesses cease to exist, it simply removes their distinct tax treatment.
After FHLs are abolished, these businesses are considered general business properties.
Importantly, the actual ending of business activity, defined as the absence of bookings or lettings with no intention to resume such activities, is required for BADR claims related to business cessation.
Transitioning from FHL to a long-term property business
Transitioning your FHL to a long-term rental or other property business model by the April 2025 deadline does not qualify as a business cessation.
Therefore, disposals of such properties after this point will not be eligible for BADR unless the business truly ceases operations before the stipulated dates:
- Before 1 April 2025 for Corporation Tax
- Before 6 April 2025 for Income Tax and CGT
If an FHL business ceases on or before these dates, owners then have three years to dispose of the business assets and still qualify for BADR.
Anti-Forestalling measures
Measures have been introduced to prevent the manipulation of contractual agreements to exploit the outgoing FHL tax advantages.
For FHL disposals where contracts become unconditional from March 6, 2024, onwards and the disposal occurs after April 6, 2025, BADR claims must include a statement verifying the below conditions:
- Condition A – There was no purpose in entering into the contract to avoid the abolition of FHL rules.
- Condition B – Either the parties were not connected, or the contract was made for wholly commercial reasons.
With the changes to the FHL tax regime and the introduction of higher rates for BADR post-April 2025, FHL owners should review their business models and disposal plans.
For advice on managing these changes and optimising your tax position, please contact our team of experts today.
