Gifting a share in holiday lettings

PM writes: I am letting property as a sole trader and own two houses in west London divided into 12 flats. These are let in summer as holiday accommodation and as assured shorthold tenancies for the rest of the year. They were purchased from the disposal of previous flats that were let solely as holiday accommodation and the capital-gains tax (CGT) held over. Could I gift a percentage of the properties to my brother and still hold over any CGT arising from the transfer?

Answer

Commercial letting of furnished holiday accommodation gets special treatment for CGT and is treated as a trade. Generally, the accommodation must be available for letting for at least 140 days in a 12-month period and be let for at least 70 days. If this is the case, your business will be treated as a trade rather than an investment operation for tax reliefs, including holdover, rollover and taper relief. You seem to have previously qualified under the holiday-lettings rules and were able to roll over the gain you made on your initial holiday properties into the properties you hold today. This reduced the base cost of the new properties by the gain you rolled over. The proposed gift would qualify for holdover relief so any gain that would be otherwise chargeable can be deducted from the deemed acquisition cost for the share of the properties transferred. This means your brother will effectively take over some of the original gain you rolled over from the previous sale. The holdover election needs to be signed by both of you. There is a standard claim form at your local tax office.