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  • Writer's pictureBaldwin's Accountancy Services

Understanding Tax Implications on the Sale of Furnished Holiday Lets (FHL)

Updated: Jan 2

Holiday lodges

Furnished Holiday Lets (FHL) have long been an attractive investment option, providing both income and potential capital gains. However, when it comes to selling these properties, navigating the tax implications becomes crucial. Whether you're a seasoned property investor or just starting in this arena, comprehending the tax obligations surrounding the sale of FHL is paramount.

Capital Gains Tax (CGT) and FHL Sales

The profit made from the sale of a FHL property is subject to Capital Gains Tax (CGT). CGT is calculated based on the difference between the property's sales price and its original purchase price, after deducting allowable expenses and any capital improvements made to the property.

For FHL owners, the good news is that they might qualify for certain reliefs that can significantly reduce their CGT liability.

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs' Relief, BADR offers a reduced rate of CGT at 10% on qualifying gains, up to a lifetime limit of £1 million. To be eligible, the FHL property must meet specific criteria:

  1. The property should have been used for a trade (in this case, the holiday letting business) for at least two years before the sale.

  2. The owner must have been involved in the FHL business as an individual, a partner, or a trustee.

Meeting these criteria can lead to substantial tax savings upon the sale of your FHL property.

Business Asset Roll-over Relief

Another relief option to consider is Business Asset Roll-over Relief, which allows you to defer paying CGT when you reinvest the proceeds from selling your FHL property into another qualifying business asset. This deferral provides a great opportunity to reinvest funds without immediate tax implications.

How Business Asset Roll-over Relief Works

Business Asset Roll-over Relief is a valuable tax relief available to individuals or businesses who sell certain qualifying assets (such as Furnished Holiday Lets) and reinvest the proceeds into other qualifying business assets. The key benefit of this relief is the ability to defer paying Capital Gains Tax (CGT) on the gains made from the sale of the original asset.

Qualifying Criteria and Process

Both the original asset being sold (the FHL property) and the new asset being purchased must meet specific criteria set out by HM Revenue and Customs (HMRC). The reinvestment must occur within a specified timeframe (usually three years before the sale of the original asset or one year after the sale) to claim the relief.

Benefits and Considerations

Business Asset Roll-over Relief provides a valuable opportunity to reinvest gains from the sale of a FHL property into other ventures without an immediate CGT burden. However, it’s essential to carefully consider the implications and seek professional advice to ensure both the original and new assets qualify for the relief and that the reinvestment is done within the specified timeframe.

Seek Professional Assistance

Understanding the intricacies of tax implications on FHL sales can be complex. Seeking professional advice from experienced accountants or tax advisors can be invaluable. They can guide you through the specific details, help you identify eligible reliefs, and optimize your tax position when selling your FHL property.

At Baldwin's Accountancy Services, we specialise in providing tailored solutions for property investors, offering expert advice on FHL sales and various tax strategies. If you're considering selling your Furnished Holiday Let and need assistance in navigating the tax implications or exploring potential reliefs, don't hesitate to get in touch with our team. We're here to support you every step of the way.

Investing in FHL properties can be a rewarding venture, but understanding the tax implications is crucial for maximizing returns. By staying informed and seeking professional guidance, you can ensure a smoother and more tax-efficient sale process for your FHL property.

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