To claim Business Asset Disposal Relief (BADR) on your Furnished Holiday Let (FHL), the property needs to meet specific criteria set out in tax law.
Currently, the rules are outlined in the Taxation of Chargeable Gains Act 1992, which states:
- The property must have been run as a qualifying business (not just passively let).
- You must have owned the business for at least two years up to the point it stops operating.
Even when a business closes, you can still claim BADR for up to three years after cessation, provided you meet these conditions.
What happens when the FHL tax regime ends?
After April 2025, FHL properties will no longer have their own unique tax rules.
Instead, they’ll be treated like any other business property.
This does not mean you cannot claim BADR, but it does mean you will need to prove the business has fully ceased operations to qualify.
Ceased operations means no bookings, no lettings, and no intention to restart the activity.
If you transition your FHL to a different type of rental business, such as long-term lets, this won’t count as ceasing the business.
In this case, disposals made after April 2025 won’t qualify for BADR unless the property has genuinely ceased operating as a business before the cut-off dates:
- 1 April 2025 for Corporation Tax
- 6 April 2025 for Income Tax and Capital Gains Tax (CGT)
Anti-avoidance rules you should know about
To stop people from taking advantage of the outgoing FHL rules, HMRC has introduced anti-forestalling measures.
If you sell an FHL property under a contract that becomes unconditional after 6 March 2024, but the sale doesn’t complete until after 6 April 2025, you will need to provide a declaration to claim BADR. This must confirm that:
- The sale was not set up to avoid the changes to the FHL regime.
- The parties involved were not connected, or the deal was made for genuine commercial reasons.
Planning ahead for the changes
Consider whether your FHL property will remain a viable business under the new rules, or whether it is better to wind down operations before the deadlines.
For help navigating these changes and making the most of your options, get in touch with our team today.