Farms with furnished holiday lettings face a race against time if they want to sell or gift their properties to maximise tax advantages before they are abolished.
The government's new legislation is intended to harmonise the tax regime for furnished holiday lets with the long-term rental market.
But NFU Mutual says that new rules around capital gains tax will affect those who may be thinking about selling or gifting their holiday let.
Furnished holiday lets are currently treated as trading businesses and owners can take advantage of capital gains tax reliefs when selling or giving away the property, but this changes from 6 April.
Those who are selling up before then to fund the purchase of a new furnished holiday let or other trading business may be able to claim 'roll over relief', NFU Mutual says.
This means means owners can defer all or some of the capital gains tax due, but those who wait to sell up after this date when the new rules take effect will need to pay up to 24% on any gain.
People who are selling their holiday let business and not planning to reinvest in another trading business may be eligible for business asset disposal relief before 6 April, the rural insurer adds.
This means they may only be liable to pay 10% or up to £1m of the gain – rather than 24%. However, this will not be available if the business ceases after this date.
Sean McCann, chartered financial planner at NFU Mutual, points out that those who plan to gift their furnished holiday let to relatives may be able to claim gift holdover relief.
This relief means that any capital gains tax due can be deferred until the new owner decides to sell up.
“If disposing of your holiday let was already in your plans, there may be benefits in doing so before the changes come into force,” he explains.
“If you are selling and buying a new furnished holiday let or other qualifying trading asset, you can roll over all or part of the gain which allows you to defer all or part of the capital gain tax payable.
“Or if you are gifting the property, you and the person you are giving it to can claim 'gift hold over relief.' This means there is no capital gains tax at the time of the gift and any CGT is 'held over' until the new owner disposes of it.
“If you’re planning on ceasing your holiday let business, if you do so before April, you may be able to claim business asset disposal relief – which allows you to have £1m of gains during your lifetime taxed at 10%."
To qualify as a furnished holiday let for tax purposes, a property must be available for hire for 210 days and let for 105 days or more within each tax year.
Mr McCann says that farm owners should also not miss out on the chance to make pension contributions to reduce their income tax bill on earnings from their furnished holiday lets.
He explains: “Profits from furnished holiday lets are currently treated as earned income and can be used to make pension contributions.
"This means that for every £80 paid in, HMRC will add another £20. If you pay 40% income tax, you can claim up to an additional £20 via your tax return.
"If you haven’t been taking advantage of this benefit, you can go back up to three years and pay a larger sum to take maximum advantage before this benefit closes on 6 April.”
Mr McCann also points out that if someone wants to put in a new bathroom or kitchen or central heating to the property, they should do it now to take advantage of the current tax treatment.
He says: “Currently, if you spend money on improvements such as putting in a new kitchen, bathroom or central heating you can claim 100% tax relief.
"From April, you will get tax relief on repairs to the property, replacing furniture or washing machines but not for capital improvements.
"If you are planning to put in a new kitchen or extend the property it may make sense to do this before 6 April 2025," he concludes.
