Reduce Capital Gains Tax On Furnished Holiday Lets

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

3rd March 2022

What is rollover relief and how does it help to reduce capital gains tax?

Rollover over relief provides owners with the ability to defer the capital gain when they buy another asset at the same price.

As shown in TCGA 1992 s.162 and HMRC’s manual about rollover relief investors can claim rollover relief to defer the payment of Capital Gains Tax.

To benefit from the rollover relief to reduce capital gains tax, the individual must:

– The replacement business asset must be acquired within 12 months of the original sale

– The rollover relief must be claimed within

– – 1 previous year to disposal

– – 3 years post disposal of an asset

– The assets old and replacement assets must be used within your business

HMRC will extend these time limits if:

– you can demonstrate that you had a firm intention to acquire new business assets within the time limit

– you were prevented from meeting the time limit by some fact or circumstance beyond your control

– after being prevented from meeting the time limit, you acted as soon as you reasonably could

Reduce Capital Gains Tax

Have you sold a property or plan to sell a property? If you have made a gain you may have a Capital Gains Tax liability. There are many ways to legally reduce your CGT liability

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The types of activities that benefit from rollover relief to defer CGT

The following types of businesses will benefit from the CGT rollover relief:

– Trading

– carrying on a business of furnished holiday lettings

– occupying commercial woodlands and managing them commercially to make a profit

– carrying on a profession, vocation, office or employment

– providing an asset to your company

– disposing of land by a compulsory purchase

If you let accommodation, you can treat it as a business of furnished holiday lettings if it meets the conditions set out on page UKPN 3 of the ‘UK property notes’.

CGT rollover relief and Section 24 mortgage interest relief cap are key tax advantages of investing in Furbished Holiday Lets compared to standard buy to let properties.

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Examples of rollover relief

HMRC provides an excellent example of rollover relief: You sell your shop for £75,000 and buy a new shop costing £90,000. If you claim relief, you will not pay tax on the gains made on the sale of the old shop until you sell the new one.

You will still pay Capital Gains Tax If you buy a replacement business asset that is less valuable than the asset sold. You sell your shop for £100,000 and buy a new shop for £90,000. The £10,000 may be taxable as it is less than the original asset proceeds.

You cease trading as a newsagent and sell your shop. Later you buy a grocer’s shop and start trading again. If your grocery trade began within 3 years of the end of your previous trade, you could defer the gain on your shop’s sale.

You dispose of an old business asset for £80,000, making a gain of £30,000. It is intended to reinvest only £60,000 in acquiring new assets. You can defer the tax on £10,000 of the gain. £20,000 of the disposal proceeds are not to be used to acquire new investments, and so a gain of that amount is still charged to tax.

Free UK Capital Gains Tax Calculator

We have created a free capital gains tax calculator for you to use. It will help you work out your capital gain, which needs to be reported and paid to HMRC within 60 days of the residential property sale.


Mitigating capital gains tax on furnished holiday lets

It is possible to sell a furnished holiday let and not pay capital gains tax.

Rollover Relief under s152 TCGA 1992 is usually only available for assets used in a trade.

s241 TCGA 1992 rollover relief is also available to a gain made on a furnished holiday let.

The assets disposed of, and the replacement asset must be used within the qualifying business at the sale and acquisition.

The “old” FHL business is deemed to end on the sale of the sole. There will be a period where no FHL is being carried on. However, HMRC Statement of Practice SP8/81 confirms that where the gap between the two businesses is no more than 3 years, they are prepared to treat the two businesses as successive so that rollover relief will be available.

This is shown in HMRC’s Property Income Manual at PIM2510.

Various conditions in Chapter 6, Part 3 ITTOIA 2005 must be met – see PIM4110. It should not be assumed that it is enough that the intended use of the replacement property will be as a Furnished Holiday Let

S153A TCGA1992 allows a provisional claim for rollover relief to be made, which under normal circumstances would mean no CGT is payable so long as the new asset is purchased within the relevant period of 36 months. A claim must be made on the tax return for the chargeable period – and possibly on the 60 Day capital gains tax report.

It is essential to understand the requirements of CGT rollover relief for Furbished Holiday Lets to avoid a tax blunder.

Meet HMRCs requirement of a Furnished Holiday Let HS253

In accordance with HMRC’s helpsheet HS253 the Furnished Holiday let must meet the requirements:

– Must be let on a commercial basis for 105 days a year

– Must be available to let for 210 days a year

– Must be within the EEA

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