Me or Partner tax return for furnished holiday let?

titchtitch

Hi All

Thanks for any help or advice here. We have a small holiday let which makes a few thousand a year so relatively small tax return. The Holiday let is jointly owned by me and my wife. We both do the work involved in looking after/turning over the holiday let.  For the first 2 tax returns years I have done the tax return and paid what was owed as my wife earned more than me. This year my wife has not worked. 

• Am I right in thinking she can do the tax return this year and use her tax-free allowance?
• If the above is correct what will I need to tell HMRC this year as to why I am not doing the tax return? 

eskbanker

If the property is owned on a 50/50 basis then the income must be split in those proportions too, you don't just get to pick and choose whose it is.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies#jointly-owned-property

The tax rules say that income from jointly owned property must be split and taxed in equal shares (50:50).

If you own the property in unequal shares, the income from it can be apportioned based on those shares and taxed on that basis. You would need to demonstrate and provide proof that you are entitled to receive income generated from the property in unequal shares rather than split 50:50.

[Deleted User]

I think you have created a few problems for yourself. 

The property is jointly owned and the income should have been declared on both of your tax returns since income was first received - you can’t just pick and choose as to who received the income and was liable to tax on it based on  who has the highest income. Presumably you haven’t made any elections as to how the ownership is split and, accordingly, I don’t understand why you decided to include all of it on your return while your wife declared nothing. Your reasoning that you didn’t declare any income for your wife because she earned more than you is very odd.  You are correct to assume that HMRC will query why the income is no longer declared by you going forward. 

Firstly you will need to amend your own returns and amend or prepare tax returns for your wife.before addressing the allocation of the income in future years. While it is likely that there is no tax loss to HMRC you have completed incorrect returns and your wife has received income which has not been declared. 

Given the nature of the questions, I would seek professional advice to at least address the issues on the previous years. 

[Deleted User]

eskbanker said:

If the property is owned on a 50/50 basis then the income must be split in those proportions too, you don't just get to pick and choose whose it is.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies#jointly-owned-property

The tax rules say that income from jointly owned property must be split and taxed in equal shares (50:50).

If you own the property in unequal shares, the income from it can be apportioned based on those shares and taxed on that basis. You would need to demonstrate and provide proof that you are entitled to receive income generated from the property in unequal shares rather than split 50:50.

It should also be noted that any election under form 17 cannot be applied retrospectively.

Jeremy535897

You might all wish to read this:
https://community.hmrc.gov.uk/customerforums/ifp/4195ab9b-0781-ec11-b822-00155d9c7b25#:~:text=As you have stated, any,split of the FHL income.

The default 50:50 split (and Form 17 election to disapply it in cases of unequal joint ownership between spouses) in section 836 ITA 2007 is excluded for properties that qualify as commercially let furnished holiday lettings (exception D). Assuming the OP's property does qualify as such, then I think OP and his wife may split the income as they choose year by year (just as they can for a trading partnership, exception C), as the first HMRC respondent confirms (the second appears to miss the point).

[Deleted User]

Jeremy535897 said:

You might all wish to read this:
https://community.hmrc.gov.uk/customerforums/ifp/4195ab9b-0781-ec11-b822-00155d9c7b25#:~:text=As you have stated, any,split of the FHL income.

The default 50:50 split (and Form 17 election to disapply it in cases of unequal joint ownership between spouses) in section 836 ITA 2007 is excluded for properties that qualify as commercially let furnished holiday lettings (exception D). Assuming the OP's property does qualify as such, then I think OP and his wife may split the income as they choose year by year (just as they can for a trading partnership, exception C), as the first HMRC respondent confirms (the second appears to miss the point).

I am aware of the rules regarding furnished holiday Lettings (this has come up many times on the forum). It is, after all , regarded as a business albeit without the need for a partnership return. Whether  the op’s property qualifies is a big ‘if’ as it seems to be very small in scale (income of a ‘few thousand a year’) and I presume that eskbanker is of the same opinion?

Perhaps it does and the rental is very cheap?Maybe the op can clarify?

The final paragraph in your link is also pertinent:

Hi,

As it is a joint property it must be declared as such. To have an alternative split you need to apply for this, you can see more information here

Jeremy535897

I think that it is an either or situation here. If the FHL meets the conditions (which includes the requirement for it to be commercially let), they can choose to allocate the rent between them as they see fit. If it doesn't, it is 50:50.

Pennywise

The OP says it only makes a few thousand per year which suggests it doesn't qualify as a FHL as the vast majority would make more than a few thousand if let out for the requisite number of days, especially in the 2021 season which was very busy and lucrative for holiday home lets.

titchtitch

Thanks for all the replies. Really helpful. We are setup as a proper FHL and meet the criteria but we are very small. We did indeed make a bit more last year as it was very busy but it's still not a huge amount. 

So to round up the above advice:

1. If I am registered as a FHL we can decide who does the tax return and who pays the tax

2. I need officially  let the tax office know what the split should be? 

This have left me with the questions how am I meant to inform the tax office? And do I need to Inform the tax office I won't be doing a return this year. 

Thanks again everyone

Jeremy535897

If you are running a commercially let FHL that meets all the criteria, you can choose how to split the profits. I would never split the profits 100:0, but I have used 99:1 before. That may mean you owe no tax, but you will no doubt already have received a notice to file a tax return for 2021/22, and you should therefore do so. Your wife will presumably need to file one if she doesn't already. There is no specific requirement to state the percentage division of income between you.