buying a holiday let

Clarew_3

This is my first post in MSE. My husband and I are due to complete a purchase of a cottage to rent out as a holiday let hopefully in a few days. The plan was that I would run it and have the bank account, bills etc in my name as my business being a non tax payer, whereas my husband is paye and just below the 40% tax limit. We are buying with cash so no mortgage involved. Our financial advisor had suggested we buy as tenants in common 95% me and 5% my husband. This way I could run the business and he would n't have to declare any of the income or even start filling in a tax return form. However, having read up a bit more I am not sure it is that simple, and that if you own a property with a spouse or civil partner any income from the property is seen as being 50/50 for tax purposes unless you file a 'form 17' with the HMRC declaring that you want the share of profits and loss to match the share each holds in the property with evidence that the 'beneficial interests' are unequal. I don't really understand what the 'beneficial interests' are??
Basically, we need to complete the purchase in a few days and need to decide on a joint ownership or tenants in common, and if its tenants in common, what the percentage ownership is for us both. Any advise on the best way to do this if possible with myself running the business and if possible it not affecting my husbands income?
I am aware that there are different tax implications for furnished holiday lets than for buy to lets.
I sometimes think that I look too deeply into these things!

Clarew_3

Having had no reply on this one (!) I have dug around a little further and now it would seem that Furnished Holiday Lets are treated differently and you cannot use the form 17. I think that with a FHL you can choose to split the income as you wish if you own the property jointly. Still not sure whether we should buy as tenants in common though. I have found a lot of discussion but no clear cut answers- may be time to talk to an accountant who knows about FHLs.

Bluebirdman_of_Alcathays

Why doesn't your husband give you the money, and you buy the property. Also, you have to declare the profit - even if it's loss making or the profit is beneath the personal allowance.

Ozzuk

You might want to check the council tax position as well - you might have to pay business rates instead. There are also things you have to do from a H&S perspective. Been a few years since I ran some though.

DigForVictory

And add redrawing up your Wills once the purchase is complete.

It isn't just taxes you need to keep sorted.

All the very best with the holiday let & hoping all works well for you!

Clarew_3

Thank you for your replies.. yes, In will obviously declare any profits- I already file a self assessment form. And yes, I think it will be a case of business rates not council tax- but hopefully will be eligible for small business rate relief. And we need to redraw out wills anyway! I think I need to find an accountant who knows about FHL's to advise on whether to buy as tenants in common, and what percentage etc- it seems like a bit of a minefield. FHL's seem to have different tax implications to Buy to Lets.

dragonsoup

Good luck. I bought one last June and after set up costs, insurance, etc etc I will be making a thumping loss this tax year

Yes the regulations for FHL are different but there are a lot of very grey areas.

booksurr

dragonsoup wrote: »

Good luck. I bought one last June and after set up costs, insurance, etc etc I will be making a thumping loss this tax year

so if you have met the criteria for it to qualify as a genuine FHL in its first year of trading any such loss counts as a trading loss and can therefore be offset against any tax bill arising from, for example, PAYE. That is one of the main differences between FHL and "normal" rental business income

booksurr

Clarew wrote: »

Having had no reply on this one (!) I have dug around a little further and now it would seem that Furnished Holiday Lets are treated differently and you cannot use the form 17. I think that with a FHL you can choose to split the income as you wish if you own the property jointly. Still not sure whether we should buy as tenants in common though. I have found a lot of discussion but no clear cut answers- may be time to talk to an accountant who knows about FHLs.

you do not need to use Form 17 as the split of profits from a FHL held by a married couple is a specific exclusion (section 836 exception D income tax act 2007 ) to the requirement for married couples to use Form 17 (section 837) to alter the default 50/50 split

http://www.legislation.gov.uk/ukpga/2007/3/section/836

purchase as tenants in common would allow you in the future to vary the relative ownership share for CGT purposes so that the lower tax payer has the larger share. Obviously with today's changes to CGT rates for basic and higher rate taxpayers the difference is not as big as before but it is still worth doing

Clarew_3

Thank you- its now clear that as a FHL it shouldn't be a problem with me taking on the business and declaring all the income with the mortgage as either a joint mortgage or as tenants in common 50/50. It somehow seems fairer that way! I guess there may be more flexibility in having it as tenants in common.... need to let the solicitor know asap so we can complete the purchase. I have learned a lot today!

Thrugelmir

Clarew wrote: »

FHL's seem to have different tax implications to Buy to Lets.

Something which you should have sought advice on and fully understood prior to buying a property. Is it going to be a worthwhile business venture. Have you prepared a business plan?