Severn Accounting
Tax & Accounting

Maximise badr on sale of the furnished holiday let

By Ali Jaw ·

Furnished holiday lets (FHLs) can be a rewarding investment, but when it comes to selling, many landlords miss valuable tax planning opportunities. One of the most overlooked reliefs is Business Assets Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief. If you own a furnished holiday let and are considering a sale, understanding how BADR works could save you thousands in capital gains tax. Let’s walk through the essentials.

What is Business Assets Disposal Relief?

BADR is a relief that reduces the capital gains tax rate on gains from disposing of qualifying business assets. Instead of paying capital gains tax at 20% (or 10% if you’re a basic rate taxpayer), BADR allows you to pay just 10% on qualifying gains, up to a lifetime limit of £1 million per person. After that threshold, the standard rates apply.

For FHL owners, this relief can be genuinely significant. If you’re selling a property with a substantial gain, the difference between 20% and 10% tax can represent tens of thousands of pounds.

Do Your Furnished Holiday Lets Qualify?

Here’s where it gets crucial: not all FHLs automatically qualify for BADR. HMRC has strict criteria, and you need to meet them to claim the relief.

Your FHL must be:

  • A qualifying business: You must have operated it as a genuine commercial business (not merely as a personal investment). This means actively managing the property, marketing it, maintaining records, and running it with a profit motive. The property must be available to let for at least 140 days per tax year and actually let for at least 70 days.
  • Owned for the required period: You must have owned the FHL for at least two years immediately before the sale.
  • Still run as a furnished holiday let: At the time of sale, it must still meet the FHL qualifying conditions—this is a common pitfall. If you’ve stopped letting it furnished, or ceased the holiday lettings business, you may lose relief.

One important point: since April 2020, HMRC has made it much harder for UK residential properties in popular holiday destinations to qualify as FHLs. The rules now require genuine holiday letting, not long-term residential use. If your FHL is in the Cotswolds or any other attractive UK location, check your letting pattern carefully.

How to Calculate Your Gain

When you sell, your chargeable gain is calculated as:

Sale price − original cost − allowable expenses = chargeable gain

Allowable expenses include acquisition costs (legal fees, surveyor’s fees), capital improvements made during ownership, and selling costs. Do not include depreciation, as that’s not deductible for FHL purposes.

Once you’ve calculated the total gain, BADR allows you to treat the first £1 million of gains (lifetime) as eligible for the 10% rate. Any gain above that threshold is taxed at the standard rate (20% for higher rate taxpayers, 10% for basic rate taxpayers).

Planning Ahead of Sale

If you’re planning to sell, take these steps:

Document everything: Keep detailed records of how you’ve run the business—booking systems, marketing spend, management time. HMRC will want evidence that this was a genuine business.

Gather your acquisition records: Dig out old receipts, completion statements, and invoices for improvements. These are vital for reducing your gain.

Check your letting history: Pull together two years’ evidence that the property met the FHL tests immediately before sale. This might include booking confirmations, council tax band evidence (or lack thereof, if furnished), and holiday letting accounts.

Consider timing: If you’re close to a tax year end and expecting a large gain, timing your sale carefully might help with cash flow planning. A January sale versus a March sale could affect your self-assessment liability date.

Declare it properly: When you submit your self-assessment, clearly claim BADR on the Capital Gains pages. Many taxpayers lose this relief simply by not claiming it.

The Bottom Line

BADR is available to FHL owners, but only if the property genuinely qualifies. The 10% rate versus 20% difference is substantial, and it’s worth getting it right. If you’ve been running your FHL as a proper business, you’re likely entitled to this relief—but HMRC expects you to prove it.

The rules around FHL status have tightened considerably in recent years, so don’t assume your property still qualifies if you’ve owned it for a while. A quick review now could make a real difference to your tax bill.

For tailored advice, contact Severn Accounting — we’re here to help.