Selling and CGT
Capital gains tax on holiday lets after the FHL abolition
What the abolition of the furnished holiday lettings regime means for CGT: lost BADR, rollover and gift relief, transitional rules and selling a former FHL now.
The special tax treatment of furnished holiday lets ended in April 2025. For capital gains tax, that means a sale or gift of a holiday let is now taxed like any other let property, at 18% or 24%, with no Business Asset Disposal Relief, rollover relief or gift hold-over relief on new disposals. A narrow transitional exception exists for businesses that stopped before the abolition date.
What changed and when
The furnished holiday lettings regime was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax. Holiday lets became part of the owner's ordinary UK or overseas property business. Our page on furnished holiday lets covers the income side.
For capital gains tax, qualifying holiday lets used to be treated as a trade. That opened up reliefs normally reserved for businesses:
| Relief | Before April 2025 | Now |
|---|---|---|
| Business Asset Disposal Relief | Available, if conditions met | Not available on new disposals |
| Rollover relief | Available on replacing the property | Not available |
| Gift hold-over relief | Available on gifts to individuals | Not available |
| Relief for loans to traders | Available | Not available |
The transitional rules
The abolition has a limited exception. If the holiday let conditions were met before the abolition date and the business ceased before that date, a disposal within the normal three-year period after cessation can still qualify for the reliefs. In practice that means the window closes by April 2028 at the latest.
There is also an anti-forestalling rule, from 6 March 2024. It stops a sale agreed by an unconditional contract before the abolition date from securing the old reliefs if it completed afterwards.
Existing capital allowances pools can continue, and holiday let losses carried forward can be set against the wider property business.
A worked example
This is an illustration, not a client example. A higher-rate taxpayer bought a cottage for £250,000, with £5,000 of buying costs, and sells it for £400,000 with £8,000 of selling costs.
| £ | |
|---|---|
| Sale price | 400,000 |
| Less selling costs | (8,000) |
| Less purchase price | (250,000) |
| Less buying costs | (5,000) |
| Gain | 137,000 |
| Less annual exempt amount (2026/27) | (3,000) |
| Taxable gain | 134,000 |
| CGT at 24% | 32,160 |
Under the old rules, a qualifying disposal could have used BADR at 18% on the eligible gain, which is six points lower. On £134,000, that is a difference of about £8,040. Now, unless the transitional exception applies, that relief is not available.
If the cottage is sold with furniture, part of the price relates to contents and goes through the capital allowances pool rather than the gain. That can produce a balancing charge taxed as income, so the split of the price should be agreed with the buyer.
Selling a former holiday let now
Sales follow the standard rules for let residential property:
- The 60-day return. Report and pay within 60 days of completion if there is tax to pay. See capital gains tax on rental property.
- Timing. Exchange sets the tax year, so spreading sales gives more annual exempt amounts and basic rate bands.
- Private residence relief. If you ever lived in the property as your main home, part of the gain may be exempt, and the final nine months of ownership always qualify.
- Costs. Add buying and selling costs and capital improvements. Costs already claimed against rental income cannot be claimed again.
Our property CGT calculator gives a quick estimate.
Gifts and succession
Gifting a former holiday let to children no longer benefits from hold-over relief. It is a disposal at market value, with the CGT and 60-day return that follow. See passing property to your children. Business Relief for inheritance tax rarely applied to holiday lets either, because letting is generally treated as an investment.
Your options for a former holiday let
- Keep it. The property is now part of your property business. For individuals, mortgage interest is relieved through the basic rate credit rather than a deduction. See Section 24.
- Convert to a long-term let. There is no tax charge for changing how you let the property, though the income, costs and mortgage terms will change.
- Move it into a company. Incorporation relief can defer the gain where the letting is a genuine business, but SDLT is usually payable on market value, and the company then deducts interest in full.
- Sell. The gain is taxed at 18% or 24% with a 60-day return. If you might qualify for the transitional exception, take advice before exchanging.
- Pass it on. Gifts no longer attract hold-over relief, so weigh the gain against the inheritance tax saved.
Checking whether the transitional rule applies
The exception turns on facts, so go through them in order.
- Did the property meet the holiday let tests before the abolition date? That means the letting conditions for the year in question, not only that you described it as a holiday let.
- Did the letting business stop before 6 April 2025 (1 April 2025 for a company)? If you are still letting it, the exception does not help you.
- Is the disposal within three years of the date the business stopped? If it is later, the relief is lost.
- Do the other conditions for the relief itself still hold? For BADR these include a minimum period of ownership and use, and the lifetime limit on gains.
Gather your letting records, the date the business stopped and any contract dates before you speak to anyone about the sale.
Talk to us
If you own a holiday let and are weighing up a sale, a gift or a move into a company, check the timing and the transitional rules first. Book a call and we will set out the options on a fixed fee agreed upfront.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
