Furnished Holiday let- Splitting income and formal partnership

Danny44

Hi,

We are in process of purchasing a holiday let property and we are confused on setting up our purchase to be able to successfully split the income fully to my wife initially and then to me in several years time-

My wife works part time and is lower rate tax payer and I am an additional rate tax payer. We understand that (if the property meets the FHL availably and bookings criteria to qualify as a FHL) then current FHL rule mean we are able to split FHL income as we wish. For now this would be to allocate 100% of income to my wife and in several years time to switch to be 100% to me if I stop working).

We were considering either buying the property in her name or jointly (we discounted buying as a company due to mortgage limitations, added complexity and other factors). From other posts and speaking to one or two tax advisers the feedback seems to be joint ownership might be more most flexible for our situation however we need to better understand the mechanism/pre-requisites for splitting FHL income if we purchase jointly. Our questions-

1. On a FHL that we joint purchase how do we register with HMRC that we are splitting the FHL income 99:1 or 100:0 to my wife? What is the mechanism? Do you need to notify them somehow if not would my wife just put 100% of the income and (our joint) mortgage costs and expenses on her own tax return?   

2. We read that on FHLs profit can be divided regardless of the actual ownership share however we also read that the profit still needs to be divided according to the beneficial interest- Is this correct? If that’s correct does it mean we need to purchase the FHL property as tenants in common with a 99:1 split?  

(We understand for a normal BTL (non FHL) to be able to split the income 99:1 you’d usually purchase as tenants in common documenting a 99:1 beneficial interest and send form17 to HMRC to deviate the default 50:50 split however we also read that form17 isn’t applicable to FHLs).

3. In light of above can you definitely own a holiday let as tenants in common? Does it make any sense for a FHL or potentially if the holiday let doesn't quite meet the FHL formal criteria ie doesn't achieve the pre-requiste bookings etc?

4.Is purchasing in joint names and then putting in place formal partnership a good idea? We've had conflicting advice but one tax expert advised us to purchase jointly and then to put a formal partnership in place on top where we'd elect ownership 100:1 each year (requires a partnership tax return in addition to our individual ones). Does that make sense? What is the benefit of having that compared to having no formal partnership in place? Any disadvantages?

5. We currently have a joint FHL mortgage application in progress- Does it matter whose name the mortgage is in given we want to split the income 100:0 to my wife?

6. Does it matter whose bank account the mortgage and expenses comes out of and when income is paid if we want the profit to be 100% my wifes? Does the bank account need to be in my wife’s name?

7. If we for any reason we don’t generate enough bookings certain years to qualify as FHL status can we still apportion any profit received from holiday let bookings to my wife (even if we've lost the mechanism to apportion income due to not achieving FHL status)?

Sorry for all the questions but we'd really appreciate any info and advice! Many thanks 

anselld

FHL is not the same as BTL.  You don’t need to jump through hoops on ownership you can just simply decide how you want the split.  You can decide retrospectively when you submit your returns and you can do so even if you own as joint tenants.
That obviously assumes you meet the FHL qualifying criteria which is not difficult for a full time holiday let.

Lizgreen333

anselld, thanks for this reply. This is indeed my own belief. However I am struggling to find which HMRC documentation to reference for this. Can you help me?
My family own an FHL four-way split. My daughter is now engaged in a convo with HMRC helpline who are insisting that we should be splitting the income 4 ways. I KNOW this is not the case, having read this on many websites, overs the years (usually those of solicitors' firms, or FHL letting agencies ). Can anyone advise which HMRC manual sets out this fact; that you are free to decide how you want to make the split of income.
many thanks

anselld

Lizgreen333 said:

anselld, thanks for this reply. This is indeed my own belief. However I am struggling to find which HMRC documentation to reference for this. Can you help me?
My family own an FHL four-way split. My daughter is now engaged in a convo with HMRC helpline who are insisting that we should be splitting the income 4 ways. I KNOW this is not the case, having read this on many websites, overs the years (usually those of solicitors' firms, or FHL letting agencies ). Can anyone advise which HMRC manual sets out this fact; that you are free to decide how you want to make the split of income.
many thanks

The original question concerned split between spouses to which this applies ...

   https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9820

I am unsure the position as far as joint ownership with other family members.