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  • FIRST POST
    • claire111
    • By claire111 18th Jul 19, 10:13 PM
    • 222Posts
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    claire111
    Tax on Holiday Let Income from jointly owned property
    • #1
    • 18th Jul 19, 10:13 PM
    Tax on Holiday Let Income from jointly owned property 18th Jul 19 at 10:13 PM
    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
Page 1
    • Dazed and confused
    • By Dazed and confused 18th Jul 19, 10:18 PM
    • 5,238 Posts
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    Dazed and confused
    • #2
    • 18th Jul 19, 10:18 PM
    • #2
    • 18th Jul 19, 10:18 PM
    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.
    • claire111
    • By claire111 18th Jul 19, 10:19 PM
    • 222 Posts
    • 55 Thanks
    claire111
    • #3
    • 18th Jul 19, 10:19 PM
    • #3
    • 18th Jul 19, 10:19 PM
    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.
    Originally posted by Dazed and confused
    Not for Furnished Holiday Lets ....yet
    • 00ec25
    • By 00ec25 18th Jul 19, 10:43 PM
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    00ec25
    • #4
    • 18th Jul 19, 10:43 PM
    • #4
    • 18th Jul 19, 10:43 PM
    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%
    • claire111
    • By claire111 19th Jul 19, 2:25 PM
    • 222 Posts
    • 55 Thanks
    claire111
    • #5
    • 19th Jul 19, 2:25 PM
    • #5
    • 19th Jul 19, 2:25 PM
    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%
    Originally posted by 00ec25
    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 ?
    • Tom99
    • By Tom99 19th Jul 19, 4:10 PM
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    Tom99
    • #6
    • 19th Jul 19, 4:10 PM
    • #6
    • 19th Jul 19, 4:10 PM
    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?
    • 00ec25
    • By 00ec25 19th Jul 19, 5:01 PM
    • 8,403 Posts
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    00ec25
    • #7
    • 19th Jul 19, 5:01 PM
    • #7
    • 19th Jul 19, 5:01 PM
    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?
    Originally posted by Tom99
    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
    • Tom99
    • By Tom99 19th Jul 19, 6:14 PM
    • 4,681 Posts
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    Tom99
    • #8
    • 19th Jul 19, 6:14 PM
    • #8
    • 19th Jul 19, 6:14 PM
    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??
    Originally posted by 00ec25
    I thought you could only split beneficial ownership not legal ownership?
    • 00ec25
    • By 00ec25 19th Jul 19, 7:32 PM
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    00ec25
    • #9
    • 19th Jul 19, 7:32 PM
    • #9
    • 19th Jul 19, 7:32 PM
    I thought you could only split beneficial ownership not legal ownership?
    Originally posted by Tom99
    random google result:

    https://www.samconveyancing.co.uk/news/conveyancing/beneficial-ownership-vs-legal-ownership-4397
    • Tom99
    • By Tom99 19th Jul 19, 7:53 PM
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    Tom99
    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.
    Last edited by Tom99; 19-07-2019 at 7:59 PM.
    • 00ec25
    • By 00ec25 19th Jul 19, 8:21 PM
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    00ec25
    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.
    Originally posted by Tom99
    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
    • jimmo
    • By jimmo 19th Jul 19, 9:35 PM
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    jimmo
    I am no tax planner but have you thought of forming a partnership for the holiday lettings business?
    If you did then provided the partnership actually reimbursed your partner for the interest paid, the interest would become partnership interest deductible in determining the partnership profit.
    https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm163360

    The partnership agreement should allow the partners to decide between them rather than specify fixed shares.

    As you are not married, and bearing in mind that specific shares of ownership of the property is not relevant to the allocation of profits, it may be advisable to decide what share of the property you will each own with a view to the potential for Capital Gains Tax if the holiday home is to be sold in the future.
    • Tom99
    • By Tom99 20th Jul 19, 4:18 AM
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    Tom99
    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
    Originally posted by 00ec25

    I think its you who need to mug up on the basic stuff. The legal interest is always owned jointly, each person cannot own a percentage share in the legal estate.
    They can however split the beneficial ownership in whatever proportions they like which is where tenants in common and declaration of trust come in.
    Last edited by Tom99; 20-07-2019 at 4:51 PM.
    • claire111
    • By claire111 22nd Jul 19, 7:33 AM
    • 222 Posts
    • 55 Thanks
    claire111
    Thanks for all comments - Just for completeness I thought I would let you know that HMRC have confirmed on their forum, that the interest would be an allowable expense

    https://online.hmrc.gov.uk/webchatprod/community/posts/list/5848.page#15002

    • 00ec25
    • By 00ec25 22nd Jul 19, 5:55 PM
    • 8,403 Posts
    • 8,266 Thanks
    00ec25
    Thanks for all comments - Just for completeness I thought I would let you know that HMRC have confirmed on their forum, that the interest would be an allowable expense

    https://online.hmrc.gov.uk/webchatprod/community/posts/list/5848.page#15002

    Originally posted by claire111
    hmmm. Notice the answer refers to purchase of THEIR SHARE

    that still does not categorically confirm that your share of the profits are net of their share of the interest

    I'd trust the answer more if you'd asked the exact question you have on here.... and they had answered with reference to that
    • 00ec25
    • By 00ec25 22nd Jul 19, 5:58 PM
    • 8,403 Posts
    • 8,266 Thanks
    00ec25
    I think its you who need to mug up on the basic stuff. The legal interest is always owned jointly, each person cannot own a percentage share in the legal estate.
    They can however split the beneficial ownership in whatever proportions they like which is where tenants in common and declaration of trust come in.
    Originally posted by Tom99
    rubbish, you are still mixing up Joint Tenancy and Tenant in Common
    • Tom99
    • By Tom99 22nd Jul 19, 6:45 PM
    • 4,681 Posts
    • 3,281 Thanks
    Tom99
    rubbish, you are still mixing up Joint Tenancy and Tenant in Common
    Originally posted by 00ec25
    How do you explain the Land Registry view on the subject? I think they know what they are talking about and you do not.

    '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.'

    But since you prefer random Google results:

    https://www.mills-reeve.com/insights/publications/understanding-joint-ownership-considerations-for-co-owners
    ' While the “legal title” of the property is held by co-owners as “one” with no identifiable shares, the “equitable title” (beneficial interest) is divisible between co-owners and can be held under two types of tenancies.'
    Last edited by Tom99; 22-07-2019 at 6:59 PM.
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