With the abolishment of the specific tax considerations for Furnished Holiday Lets (FHL) from the beginning of the current tax year, owners need to prepare for higher tax bills.
Given that couples and joint owners of FHL previously benefited from specific concessions, they may find themselves uniquely impacted by the changes.
To avoid being hit with a surprise bill, it is worth understanding the changes and what can be done about them.
How have the Furnished Holiday Lets rules changed for jointly held property?
Part of the previous tax relief afforded to FHLs was the application of taxation based on the share of income that each individual in the partnership received. This could be determined based on marginal tax rates.
In some cases, where one individual paid Income Tax at a higher rate than the other, they could be allocated a lower share of the profit, which would reduce the overall tax bill.
However, as a result of the new rules, profit shares on such property for married couples or civil partners will now be divided 50:50 by default.
This could result in a higher rate of tax being paid overall.
To avoid the 50:50 split, married couples or civil partners who are joint owners of FHL can use HM Revenue & Customs’ (HMRC) Form 17 to notify them of the actual ownership proportions.
It is important to note that Form 17 does not change the ownership split. It simply advises HMRC that the property is not owned equally and that the owners wish to be taxed based on the share of the property that they actually own.
To ensure Form 17 is accepted, evidence will need to be provided in relation to the division of shares using a declaration or deed.
Be aware that income from the property is taxed in line with the designation of Form 17 from the date the last spouse or civil partner signed it and it needs to reach HMRC within 60 days.
Any submissions after this will be invalid, and any income arising before the form is signed will not be covered.
If you have been affected by the abolition of the FHL tax reliefs, please contact us today.
