CG73505 - Furnished holiday lettings: consequences of abolition
Source: gov.uk (2025-03-17)


Throughout this manual, all legislative references are to Taxation of Chargeable Gains Act 1992 (https://www.legislation.gov.uk/ukpga/1992/12/contents) (“TCGA92”) unless otherwise stated.

The special treatment of furnished holiday lettings (FHL) for capital gains purposes no longer applies from 6 April 2025 and there are rules to deal with the consequences for the reliefs mentioned below. There is also a rule to prevent certain “forestalling” arrangements. See CG53007 (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53007) for the rule that applies for the Substantial Shareholding Exemption which applies for Corporation Tax purposes.

Broadly, the removal of sections 241 and 241A means that a FHL business is no longer treated as a trade from 6 April 2025. (1 April 2025 for Corporation Tax purposes). The operation of the following reliefs are modified –

Replacement of Business Asset Relief (rollover relief)

Rollover relief under sections 152 onwards (https://www.legislation.gov.uk/ukpga/1992/12/part/V/chapter/I/crossheading/replacement-of-business-assets) will not be available where the replacement asset is acquired on or after 6 April 2025 for the purposes of a holiday lettings business as that activity is no longer treated as a trade. However, relief will still be available where an asset used in a FHL business was disposed of before that date and a claim is made for the gain to be rolled over into the acquisition of an asset used in an actual trade, paragraph 13(2)(a) Schedule 5 Finance Act 2025 (https://www.legislation.gov.uk/ukpga/2025/8/schedule/5/paragraph/13/enacted).

Relief for loans to traders

This relief under section 253 (https://www.legislation.gov.uk/ukpga/1992/12/section/253) will not be available where a loan has been made to a FHL business and the claim is made on or after 6 April 2025, unless the conditions at section 253(3A) are met and the earlier time specified in the claim is before 6 April 2025, paragraph13(2)(b) Schedule 5 Finance Act 2025 (https://www.legislation.gov.uk/ukpga/2025/8/schedule/5/paragraph/13/enacted).

Business Asset Disposal Relief (BADR)

BADR will not be available where there is a disposal of the whole or part of a FHL business on or after 6 April 2025 (section 169I (https://www.legislation.gov.uk/ukpga/1992/12/section/169I)(2)) nor on the sale of shares from that date where the company is no longer treated as a trading company as a result of the abolition of the FHL rules (section 169I (https://www.legislation.gov.uk/ukpga/1992/12/section/169I)(6)).

However, BADR may still be available where the claim is based on there being a disposal of assets used in a business following the cessation of that business where there was an actual cessation of an FHL business before 6 April 2025 (section 169I (https://www.legislation.gov.uk/ukpga/1992/12/section/169I)(4)). Similarly, for a disposal of shares where a company actually ceased to qualify as a trading company, taking into account the FHL rules, before that date (section 169I (https://www.legislation.gov.uk/ukpga/1992/12/section/169I)(7)).

The abolition of the FHL rules does not mean that a business has ceased for BADR purposes.

The rules applying where BADR is claimed on a disposal of trust business assets or on an “associated disposal” are similarly adapted where a business ceased before 6 April 2025 and the asset disposal happens on or after that date, paragraph 19 Schedule 5 Finance Act 2025 (https://www.legislation.gov.uk/ukpga/2025/8/schedule/5/paragraph/19/enacted).

Paragraph 14 Schedule 5 Finance Act 2025 (https://www.legislation.gov.uk/ukpga/2025/8/schedule/5/paragraph/14/enacted) is an “anti-forestalling” rule to counter an arrangement which could otherwise be used to “lock in” FHL treatment for certain capital gains reliefs where an asset is disposed of on or after 6 April 2025 in anticipation of the abolition of the FHL rule. This arrangement involves the use of an unconditional contract.

Section 28 (https://www.legislation.gov.uk/ukpga/1992/12/section/28) provides that the date of disposal of an asset for CGT purposes is the date of the contract rather than the date the contract is completed. The rule also provides that a conditional contract is treated in the same way once the relevant condition is met. This provides an opportunity to plan for potential changes to the CGT rules. The arrangements normally include the creation of a company or other vehicle that ‘stands on contract’ until such time as a third party purchaser is found.

The anti-forestalling rule applies where:
- an unconditional contract is entered into before 6 April 2025,
- the contract for the disposal completes on or after that date, and
- a claim for rollover relief, BADR or for gifts on business assets (section 165 (https://www.legislation.gov.uk/ukpga/1992/12/section/165)) is made.
Where the rule applies the date of disposal for capital gains purposes does not change but means that an FHL business will not be treated as a trade as at that date with the result that the relevant relief will not be available.

The rule applies unless:
- the contract had no purpose of avoiding the effect of the abolition of the FHL rules, and
either –
- the contract was entered into wholly for commercial reasons, or
the parties to the contract are not connected persons,

and
- the claim includes a statement that the above are met.
This is one of a number of anti-forestalling rules applying to capital gains included in Finance Act 2025, see CG10249 (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg10249) for further detail.