Selling a former FHL: CGT and the remaining reliefs

In short: A furnished holiday let sold before 6 April 2025 could attract Business Asset Disposal Relief at 10% CGT — but only where the sale was itself a "qualifying business disposal" for BADR purposes (the whole or an identifiable part of a business being disposed of, held for the qualifying holding period, with the seller in the relevant qualifying capacity), not simply lettings that met the FHL day-count conditions. Meeting the FHL income-tax letting conditions alone was never enough. Most post-6-April-2025 STL disposals fall outside BADR entirely and are taxed at the standard residential-property CGT rates — 18% within the individual's basic-rate band, 24% above. BADR itself rose to 14% from 6 April 2025 and 18% from 6 April 2026 for the qualifying disposals it still applies to. Anyone considering exit needs the numbers modelled on their specific facts — the difference between the pre-abolition and post-abolition arithmetic on a portfolio-scale exit runs to five and six figures.

The abolition of the Furnished Holiday Let regime hit income tax hardest — the mortgage interest restriction is the largest cash impact for most operators. But for anyone contemplating exit, the CGT consequence is the number that matters most.

What changed on 6 April 2025

Before 6 April 2025, an FHL that had been continuously operated as such for the required qualifying period, and where the sale was itself a qualifying business disposal for BADR purposes (the whole or an identifiable part of the business, not just a property held within a wider let portfolio), could be sold with:

• Business Asset Disposal Relief (BADR) applied to the gain, taxed at 10%, up to a lifetime limit of £1 million — again, only on a qualifying business disposal, not on FHL day-count compliance alone.
• Holdover relief available on gift transfers of business assets (with the same "business" tests underlying it).
• Rollover relief available where sale proceeds were reinvested in qualifying business assets.

From 6 April 2025, the FHL regime was abolished for income and capital gains tax purposes. For most operators still trading through the abolition date, the property is now, for CGT purposes, a standard residential investment property. That means:

• BADR is not automatically available on disposal (it never applied to standard residential property investments, and the FHL route into BADR closed on 5 April 2025).
• Section 165 TCGA business-asset holdover relief is not available on gifts to individuals (though section 260 holdover on chargeable lifetime transfers into a discretionary trust remains available in principle, and is unaffected by FHL abolition — but is a chargeable-lifetime-transfer route with its own IHT and settlement consequences; see the BPR piece for the specific eligibility qualifications and the IHT interactions before treating it as a general holdover route).
• Rollover relief is not available.
• The gain is taxed at the standard residential property CGT rates: 18% for gains within the basic rate band, 24% above it.

The BADR three-year post-cessation window — who still qualifies

A specific transitional route survives: where an FHL business genuinely ceased trading before 6 April 2025, BADR remains available under s.169I TCGA 1992 on a qualifying disposal made within three years of the cessation date. This is not a general grandfathering — it applies only where there was a genuine cessation before the abolition date, evidenced properly. Operators who continued letting through the abolition date do not qualify.

For those who do qualify, the BADR rate is not 10% — it has risen with the rest of BADR:

• 10% on qualifying disposals up to 5 April 2025.
• 14% on qualifying disposals from 6 April 2025 to 5 April 2026.
• 18% on qualifying disposals from 6 April 2026 onwards.

The lifetime limit remains £1 million.

What the arithmetic actually looks like

Take a hypothetical STL sold for a £500,000 gain, held by a higher-rate taxpayer with no other capital disposals in the year and the £3,000 annual exempt amount available.

Scenario A — sold before 6 April 2025 (last-day FHL disposal, BADR available): Gain £500,000, less AEA £3,000 = £497,000 at 10% = £49,700 CGT.

Scenario B — sold in 2025/26 or 2026/27, no BADR: Gain £500,000, less AEA £3,000 = £497,000 at 24% = £119,280 CGT.

Difference: £69,580 on this single property disposal. The figure cannot simply be multiplied across a portfolio of similar disposals — the £3,000 annual exempt amount is used once per tax year across all gains, the £1 million BADR lifetime limit applies to the individual across all qualifying disposals, and the basic-rate band on any given disposal depends on the seller's aggregate taxable income for the year. Aggregate portfolio positions need to be modelled specifically.

The 24% figure is the higher-rate residential CGT applied in this specific scenario because the whole £497,000 above the AEA sits in the higher-rate band. For a seller with meaningful basic-rate band available, the first slice of the gain up to the ceiling of that band is taxed at 18% (residential-property basic rate) before the higher-rate 24% applies. The arithmetic is worked on the specific seller's total taxable income for the year — a generic "24% throughout" model over-taxes anyone with unused basic-rate capacity.

The tactical options still available

For operators who have not yet disposed:

1. Spousal transfer before sale. Where the property is held by one spouse and the other has spare AEA and/or a basic-rate band, a no-gain-no-loss transfer to the spouse before sale can use two AEAs and split the gain across two rate bands. Modest but real.

2. Split disposal across tax years — the s.28 TCGA point. A gain is triggered for CGT purposes on the date of the contract, not the completion date (section 28 TCGA 1992), for an unconditional contract. Where the contract is conditional on a specified condition being met, the disposal date is the date the condition is satisfied. In either case a single sale contract fixes the disposal date at one moment — an "instalment sale" between one buyer and one seller does not straddle tax years for two AEAs simply by paying the price in tranches. Splitting a disposal genuinely across tax years therefore requires genuinely separate contracts for genuinely separate part-interests (e.g. a phased sale of undivided fractional interests to the same buyer under separate contracts, or a sale of different units in a portfolio in different tax years). It works where the underlying transactions are actually separate; it does not work as a re-labelling exercise on a single sale.

3. Incorporation — with the caveat that a share sale is not automatic. Where the portfolio has been incorporated, the eventual exit can be structured either as a sale of the property out of the company (the company pays corporation tax on the gain, then the shareholder pays further tax on extracting the after-tax proceeds — two layers of tax) or as a sale of the company's shares (the buyer acquires the SPV; the seller pays CGT on the share disposal). A buyer will often prefer to buy the property out of the company because the property route avoids inheriting the company's history and contingent liabilities; a seller may prefer a share sale for a cleaner tax outcome. Neither is a default — the eventual route is negotiated and depends on the specific asset and buyer. Note also: shares in a property investment company do not automatically attract BADR (the investment-business exclusion applies to companies too), and CGT rates on ordinary share disposals moved to the main 18%/24% rates from 30 October 2024 — a share sale does not carry a lower CGT rate than a straightforward asset disposal for a higher-rate individual.

4. Charitable donation — but not by donating "a slice". A gift to charity of the whole beneficial interest in a chargeable asset attracts no-gain-no-loss treatment for CGT (s.257 TCGA 1992) and potentially income tax relief on the market value under the gifts of land to charity rules (Income Tax Act 2007 ss.431-446). Income-tax relief for a gift of land does not generally follow from donating an arbitrary fractional slice while retaining the rest — the whole beneficial interest is normally required. Where the property is jointly owned, HMRC's position is that all joint owners must dispose of their interests to the charity for the income-tax relief to apply — one joint owner cannot donate their share in isolation while another retains theirs and claim the income-tax relief. The CGT no-gain-no-loss treatment on a gift of an asset to charity is a separate rule; the interaction of the two reliefs, and the whole-beneficial-interest requirement, is why this route needs specialist advice before being deployed. HMRC's charity guidance sections 5.7 and 5.22.7 is the reference.

5. Reinvestment into qualifying EIS or SEIS — two separate reliefs. These are commonly confused. EIS deferral relief (TCGA 1992 Schedule 5B) lets an individual defer a CGT gain by reinvesting the gain amount into qualifying EIS shares — the gain is not extinguished, only pushed to a later chargeable event. A deferred gain can revive on chargeable events other than a sale (for example, on the investor ceasing to be UK-resident, or on the EIS shares ceasing to qualify) — the gain does not sit indefinitely on the EIS shares waiting only for their sale. SEIS reinvestment relief (TCGA 1992 Sch 5BB) is different: 50% of the qualifying reinvested gain is exempted permanently, up to defined annual limits. Both carry strict qualifying conditions on the investee company, the timing of the reinvestment, and the investor's holding. The risk profile of EIS/SEIS-qualifying companies is high and this is not a "route" to be treated lightly.

Interaction with the 60-day CGT return

For UK-resident individuals disposing of UK residential property, a 60-day CGT return and payment on account is required where CGT is payable on the disposal. Where no CGT is due — because Principal Private Residence relief covers the whole gain, or because reliefs and the annual exemption leave nothing to pay — the 60-day return is not required. Non-resident persons and companies have separate reporting regimes; company disposals go through the corporation tax computation, not the 60-day route. Missing an applicable 60-day return triggers penalties on top of the tax.

What operators should do

1. Do not dispose without a specific CGT projection. The projection changes what you would accept as a sale price.
2. Model at least two scenarios: sale now vs sale in 12 months. Rate changes, allowance changes, and property-market changes over that window can be material either way.
3. If exit is on the two-year horizon, consider whether restructuring first improves the effective rate. The right structure depends on the operator's other income and asset position — this is not a rule-of-thumb decision.
4. Line up the 60-day return workflow with your accountant before completion. It is cheaper to prepare it in advance than to catch up under deadline pressure.

The generalised BADR route into a 10% rate on FHL property disposals has closed for operators still trading through the abolition. A narrow three-year post-cessation window survives for FHL businesses that genuinely ceased before 6 April 2025 — the operators who still qualify need to model the specific position rather than assume it applies. The other planning options that remain are more limited, more specific to individual circumstances, and require the exercise being done before the property is listed, not after the sale has agreed.

Book a free consultation to model your disposal position.

Sources: Taxation of Chargeable Gains Act 1992 (s.28, s.165, s.169I, s.260); Finance Act 2025 (FHL abolition primary legislation); HMRC — Business Asset Disposal Relief; HMRC — Report and pay Capital Gains Tax on UK property; ICAEW — Furnished holiday lets in 2025/26 tax return.