Things to consider now
With holiday letting properties not qualifying as trading assets for Capital Gains Tax purposes post 5th April, 2025 consider the following:-
Sell now?
If owned and traded under the rules for 2 years selling now would produce a 10% capital gains tax rate under the Business Asset Disposal Relief (“BADR”) rules if you qualify. The higher CGT rate without BADR will be 24% from 6th April, 2024. Subject to the impending legislation that is being introduced where a sale takes place before 5th April, 2025 it may still be possible to claim rollover relief if replacement business assets are acquired within 3 years of disposal.
Gift to individuals?
If thinking about doing this gains on qualifying properties can still qualify for “holdover” relief whereby the donee can take on the donor’s gain and no CGT will be payable on the gift. This relief won’t be available after 6th April, 2025. From that date if you were looking to remove a furnished holiday let property from your estate only a transfer into trust, rather than directly to individuals, would qualify for holdover relief. Technically where holdover relief is claimed on the gift of a furnished holiday let to an individual if they lived in the property as their main residence post gift they would be able to claim private residence relief on any subsequent sale. In contrast where a property is transferred to the beneficiary of a trust with a holdover election were they to live in the property they would not be able to claim private residence relief when the property is sold.
Transfer qualifying holiday let properties into a company?
Again holdover relief will be due before 5th April, 2025 but not afterwards. This may be something higher rate taxpayers wish to consider if they have finance costs in respect of holiday let properties as there will only be tax relief at 20% on mortgage interest from 6th April 2025 whereas under the current furnished holiday let rules the full amount of interest is deductible in calculating taxable profits.
If you are contemplating one of the above, taking advice now will be advisable. We specialise in this area and can help.
