What are the different considerations for business asset disposal relief (BADR) if the client were to dispose of the property before or after April 2025?“
A: Our current understanding of the abolition of the FHL rules is based on draft legislation, which may be subject to change.
For FHL businesses to qualify for BADR they must meet certain as outlined by TCGA 1992 s241(3A). In addition to this, under normal circumstances, where an individual who would otherwise qualify for BADR ceases their qualifying business activities they can claim BADR up to three years after the cessation as per TCGA 1992 s169i (4):
(a)the business is owned by the individual throughout the period of 2 years ending with the date on which the business ceases to be carried on, and
(b)that date is within the period of 3 years ending with the date of the disposal.
This is where the confusion may arise when it comes to the abolition of FHL rules. HMRC have said in their policy paper:
The repeal of FHL provisions does not mean that FHL businesses have ceased, it merely disapplies the relevant legislation. The affected businesses will be continuing property businesses, until there is an actual cessation of business activity. Where legislation refers to the cessation of business, it means an actual cessation of business activity. The date of cessation is not the date that further bookings stop being taken, it is the date from which there are no longer any bookings or lettings nor any intention to resume such activity in future. To benefit from capital gains reliefs beyond April 2025, the business has to cease before 1 April 2025 for Corporation Tax or before 6 April 2025 for Income Tax and Capital Gains Tax purposes.
This means that just because FHLs won’t be recognised under tax law anymore doesn’t mean that the business has ceased.
Your client’s plans to move to property business from one of an FHL to a long-term property business does not constitute it ceasing on or before 5th April 2025 and therefore it will not benefit from BADR if the disposal takes place later.
If your client chooses to cease their rental business on or before 5th April 2025 which has been a FHL for a qualifying period they will have three years to make their disposal and still claim BADR.
However, anti-forestalling rules apply where the individual is selling their FHL property business where the contract became unconditional on or after March 6th, 2024, and the property was disposed of after 6th April 2025. The individual is required to include a statement that both the conditions below are satisfied, alongside their claim for BADR:
• Condition A – there was ‘no purpose of entering into the contract’ to avoid the abolition of the FHL rules; and
• Condition B – either:
–the parties were not connected persons; or
– the contract was entered into for wholly commercial reasons.
