Family gifting of Furnished Holiday Lets to be impacted by imminent tax changes
Effective from April 2025, the tax benefits currently afforded to FHLs versus other general property income will cease. If you were planning to gift your FHL to children/grandchildren as part of inheritance tax (IHT) planning at some point in the future, the rule change will impact you unless planning is undertaken by 5 April 2025.
The current tax treatment of Furnished Holiday Lets
As a reminder, most FHL businesses do not qualify for Business Property Relief (BPR). As such, on death, the property's full value is exposed to inheritance tax at up to 40%. Historically, this has been mitigated primarily through lifetime gifts to children, grandchildren or trusts.
As long as the business qualifies as an FHL business (meeting all the statutory conditions), it is normally possible to transfer it without an immediate Capital Gains Tax (CGT) charge. Any gains are held over and do not crystalise until the recipient sells. In this way, FHL businesses could, with proper planning, be passed down through the generations with little to no IHT or CGT being due.
What’s changing?
From 6 April 2025 onwards, it will no longer be possible to transfer FHL businesses to individuals without crystallising CGT on any gains that may have arisen throughout the period of ownership. Therefore, the ability to directly pass FHL businesses to children/grandchildren with no upfront CGT will cease to be possible.
It will not be the right decision for everyone, but if you have previously thought about gifting your FHL businesses in the next 1-5 years, it might be worth considering accelerating the gift to ensure CGT is not payable. If you are in this position, you are recommended to get in touch with a specialist advisor as soon as possible, given there is little time left to implement such planning.
Important considerations before deciding to gift
We do not advise gifting without taking advice specific to your circumstances. Not everyone will qualify for CGT deferral, and if properties are mortgaged, there may be Stamp Duty Land Tax (SDLT)/Land & Buildings Transaction Tax (LBTT) costs to gifting, which need to be considered. Such points, and others, should be checked before making gifts. In the event the property is mortgaged, your bank would need to approve any transfer, which is unlikely to be possible prior to 5 April 2025.
We are here to help
If you own a FHL and have any questions on how the upcoming tax changes could impact you, please get in touch with a member of our tax consultant team via the form below or your usual Azets advisor.