Owners of furnished holiday homes face race against time to maximise tax savings 

The expert explained that the new legislation is intended to harmonise the tax regime for furnished holiday rentals with the long-term rental market, but the new rules around capital gains tax will affect those who may be thinking about selling or gifting their holiday rentals.    

Furnished holiday lets are currently treated as trading businesses, and owners can take advantage of various capital gains tax reliefs when selling or giving away the property. However, these rules will change from 6th April 2025.   

Those who are selling up before 6th April to fund the purchase of a new furnished holiday let or other trading business may be able to claim ‘roll over relief’, which means they can defer all or some of the capital gains tax due. However, those who wait to sell up after this date, when the new rules take effect will need to pay up to 24 percent on any gain.    

People who are selling their furnished holiday let business and not planning to reinvest in another trading business may be eligible for business asset disposal relief before 6th April, which means they may only be liable to pay 10 percent or up to £1 million of the gain – rather than 24 percent. However, this relief will not be available if the business ceases after this date.   

Be aware of all implications before making a decision 

Sean McCann, chartered financial planner at NFU Mutual, pointed out that those who plan to gift their furnished holiday let to relatives may be able to claim gift holdover relief, which means that any capital gains tax due can be deferred until the new owner decides to sell up.    

He explained: “If disposing of your holiday let was already in your plans, there may be benefits in doing so before the changes come into force.    

“If you are selling and buying a new furnished holiday let or other qualifying trading asset, you can roll over all or part of the gain, which allows you to defer all or part of the capital gains tax payable.    

 “Or if you are gifting the property, you and the person you are giving it to can claim ‘gift hold over relief’. This means there is no capital gains tax at the time of the gift, and any CGT is ‘held over’ until the new owner disposes of it.    

 “If you’re planning on ceasing your furnished holiday let business if you do so before 6th April you may be able to claim business asset disposal relief – which allows you to have £1 million of gains during your lifetime taxed at 10 percent.”   

 Mr McCann added the key message is that if farmers and other business owners are planning to sell or gift their furnished holiday let in advance of the changes, it is important to take advice, so they are aware of all the implications before making a decision. 

Take advantage of current tax treatment 

To qualify as a furnished holiday let for tax purposes, a property must be available for hire for 210 days and let for 105 days or more within each tax year. Lettings to families and friends at zero or reduced rates are not counted.    

McCann said that owners should also not miss out on the chance to make pension contributions to reduce their income tax bill on earnings from their furnished holiday lets.    

 He continued: “Profits from furnished holiday lets are currently treated as earned income and can be used to make pension contributions. This means that for every £80 paid in, HMRC will add another £20.  

“If you pay 40 percent income tax, you can claim up to an additional £20 via your tax return. If you haven’t been taking advantage of this benefit, you can go back up to three years and pay a larger sum to take maximum advantage before this benefit closes on 6th April.”    

 Mr McCann also points out that if someone wants to put in a new bathroom or kitchen or central heating to the property, they should do it before 6th April to take advantage of the current tax treatment.    

 He said: “Currently, if you spend money on improvements such as putting in a new kitchen, bathroom or central heating, you can claim 100 percent tax relief (within limits).  

“From April 2025 you will get tax relief on repairs to the property, replacing furniture or washing machines, but not for capital improvements. So, if you are planning to put in a new kitchen or extend the property, it may make sense to do this before 6th April 2025.” 

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