Property letting is not a “trade, profession or vocation” within s169S TCGA 1992 but s241(3A) TCGA 1992 states that BADR can apply by virtue of s241(3)(a) and (b):
(a)any UK property business which consists of, or so far as it consists of, the commercial letting of furnished holiday accommodation shall be treated as a trade, and
(b)all such lettings made by a particular person or partnership or body of persons shall be treated as one trade.
Therefore, no matter how many FHLs there are, s241(3)(b) treats them as one trade for CGT purposes. S241(2) states that the meaning of a qualifying FHL is the same for CGT as it is for income tax. The tests for income tax are contained in Chapter 6 Part 4 ITTOIA 2005 (see PIM4100). The income tax tests are carried out on a tax year basis apart from when the FHL starts or ceases when the tests are 12 months from the first letting or 12 months to when the letting ceases respectively – s324 ITTOIA 2005 (see PIM4110).
Where one FHL is being sold there is usually no practical issue if the FHL has qualified for several years. This is because even if the FHL conditions are not met for the 12 months to the date the letting ceased, the FHL will then have ceased to qualify at the previous 5th April and s169I(4) TCGA 1992 allows BADR providing there was a qualifying FHL for a two year period to that 5th April (the date the “trade” ceased) and the sale takes place within 3 years of that date. Where there has been no qualifying FHL for two years to the 5th April prior to sale, the timing of the sale will need to be carefully considered and perhaps even delayed.
More than one FHL
Where several FHLs are held the issue is more complicated. If one or a few FHLs are being sold but some FHLs are retained and continue, then as s241(3)(b) treats all FHLs as one trade, there has been no cessation of the deemed FHL trade. Therefore, the FHLs being sold must be disposed of as “part of a business” under s169I(2)(a) to qualify and have qualified for two years to the date of the disposal. This means they must be qualifying FHLs at the date of disposal. The income tax tests are carried out on each property to see whether it qualifies as a FHL, and the CGT legislation does not override this. Therefore, if the FHLs being sold do not qualify for the 12 months to the final letting where there is a continuing FHL business, no BADR will be due. The income tax rules permit an “averaging election” to be made for the tax year under s326 ITTOIA 2005 (see PIM4110 again). However, this election is only effective if the other conditions of s325 ITTOIA 2005 are met in the 12 months to the date of disposal.
The aforementioned “part of a business” means that a disposal of a non-qualifying FHL would be a disposal of a surplus asset only and so would not attract BADR. See HMRC’s guidance at CG64015 et seq. and the (non-binding) First Tier Tribunal decisions in Gilbert (t/a United Foods( v HMRC (2011), Russell v HMRC (2012), Carver v HMRC (2015), Amin v HMRC (2016) and Thomson v HMRC (2022).
Please share this article with your clients