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Tax on Holiday Let Income from jointly owned property

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Tax on Holiday Let Income from jointly owned property

edited 30 November -1 at 1:00AM in Cutting Tax
16 replies 2.1K views
claire111claire111 Forumite
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edited 30 November -1 at 1:00AM in Cutting Tax
Hi

my partner and I are hoping to buy a pair of cottages and want to ask if the following proposal works ....

We are not married.

Property 1 is £400k will be in his name and we will live in it. Property 2 is £350k will be owned as tenants in common 90% by him and 10% by me. Property 2 will be a furnished holiday let. The two cottages are on separate titles but will be a single transaction.

Our current home will be sold releasing £500k equity. He will port his existing mortgage of £180k and top it up to £200k which will be in his name only and secured on property 1.

We plan to offset the interest on the residential mortgage against the income from the holiday let and then allocate the profit 99% to me.

Were not trying to evade tax but as a housewife it makes sense for the profits to go in my name and I will be running the holiday let side of it too.

We have studied PIM1030 BIM45650 and BIM45685 and feel what we propose is ok but very much welcome other points of view incase we are totally on the wrong track !

Many thanks and happy to clarify any points if necessary !

Claire
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Replies

  • Dazed_and_confusedDazed_and_confused Forumite
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    We plan to offset the interest on the residential mortgage against the income from the holiday let

    Are you aware of the change to tax legislation which means the ability to claim interest as an expense is being phased out? Currently 25% of eligible finance costs are claimable but this reduces to 0% on 6 April 2020.

    There is a tax credit claimable instead, based on the finance costs, but this can make a big difference to the tax ultimately payable.
  • claire111claire111 Forumite
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    Are you aware of the change to tax legislation which means the ability to claim interest as an expense is being phased out? Currently 25% of eligible finance costs are claimable but this reduces to 0% on 6 April 2020.

    There is a tax credit claimable instead, based on the finance costs, but this can make a big difference to the tax ultimately payable.

    Not for Furnished Holiday Lets ....yet ;)
  • 00ec2500ec25
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    my initial concern at this time of night would be the interest charge on property 1 is solely that of your partner. You have no share of that cost, so the FHL profit calculation may not be a simple 99%
  • claire111claire111 Forumite
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    00ec25 wrote: »
    my initial concern at this time of night would be the interest charge on property 1 is solely that of your partner. You have no share of that cost, so the FHL profit calculation may not be a simple 99%

    Ok, thanks we were not sure about this bit either. We thought we might be able to work out the profit then split that.... but you think possibly not ?
  • Tom99Tom99 Forumite
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    Are you 100% sure you can offset the loan interest on the residential property? You have obviously not taken out this loan in order to buy the holiday let since you already have a loan of £180k.
    Would a loan on the holiday let be that much more expensive?
  • 00ec2500ec25
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    Tom99 wrote: »
    Are you 100% sure you can offset the loan interest on the residential property? You have obviously not taken out this loan in order to buy the holiday let since you already have a loan of £180k.
    Would a loan on the holiday let be that much more expensive?
    yes they are 100% correct that the loan secured on property A can be claimed as a cost on property B since the cash borrowed was used to fund the purchase of B and is therefore wholly a business cost


    as explained in the links they already gave this is categorically covered in tax law


    B is in joint ownership with a legal ownership share 90/10 differing to the benefical ownership share 99/1. That part is OK because they are not married so are free to split the profits as they want, but my concern remains that A is sole ownership so the question remains ... what profit??

    Unfortunately this is a rather specific scenario not covered in easily accessible guidance and i'm not asking our backroom tax specialists about a forum post as they'll want to know who to bill for the advice
  • Tom99Tom99 Forumite
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    00ec25 wrote: »
    B is in joint ownership with a legal ownership share 90/10 differing to the beneficial ownership share 99/1. That part is OK because they are not married so are free to split the profits as they want, but my concern remains that A is sole ownership so the question remains ... what profit??
    I thought you could only split beneficial ownership not legal ownership?
  • 00ec2500ec25
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    Tom99 wrote: »
    I thought you could only split beneficial ownership not legal ownership?
    random google result:

    https://www.samconveyancing.co.uk/news/conveyancing/beneficial-ownership-vs-legal-ownership-4397
  • edited 19 July 2019 at 8:59PM
    Tom99Tom99 Forumite
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    edited 19 July 2019 at 8:59PM
    00ec25 wrote: »
    A more reliable result from the Land Registry rather than a random google result:

    https://hmlandregistry.blog.gov.uk/2016/08/16/legal-estates-beneficial-interests-whats-difference/

    The term ‘owner’ in relation to land is generally understood to mean the legal owner and is normally the registered proprietor. When two or more people are registered as proprietor of the land they are known as ‘joint proprietors’. Their legal ownership of the land is truly ‘joint’ as the legal estate cannot be divided between them and each person cannot own a percentage share in that legal estate. There is no physical division in the land. When one joint proprietor dies, the legal estate in the whole of the land automatically vests in the surviving joint proprietor.
  • 00ec2500ec25
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    Tom99 wrote: »
    A more reliable result from the Land Registry rather than a random google result:

    https://hmlandregistry.blog.gov.uk/2016/08/16/legal-estates-beneficial-interests-whats-difference/

    The term ‘owner’ in relation to land is generally understood to mean the legal owner and is normally the registered proprietor. When two or more people are registered as proprietor of the land they are known as ‘joint proprietors’. Their legal ownership of the land is truly ‘joint’ as the legal estate cannot be divided between them and each person cannot own a percentage share in that legal estate. There is no physical division in the land. When one joint proprietor dies, the legal estate in the whole of the land automatically vests in the surviving joint proprietor.
    this is basic stuff
    please learn difference between Joint Tenant (your quote) and Tenant in Common (Op's position)
    https://www.gov.uk/joint-property-ownership
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