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 benefited from specific considerations, 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 tax relief afforded to FHLs was the application of taxation based on the share of the income that each individual in the partnership received.
In some cases, where one individual paid Income Tax at a higher rate than the other, it resulted in them receiving lower shares of the income, which would reduce the overall tax bill.
However, shares of the property will now be divided 50:50 by default.
This could result in a higher rate of tax being paid on the income, particularly if one individual pays a higher rate for Income Tax.
To avoid the division remaining at the 50:50 split, joint owners of FHL can use HM Revenue & Customs’ (HMRC) Form 17 to ascribe the specific split of income.
To ensure that Form 17 is accepted, evidence will need to be provided of the division of shares by using a declaration or deed.
Form 17 will not, by itself, change the ownership split of the property, but it can inform HMRC if the division of shares is not the default 50:50.
Be aware that income from the property is taxed in line with the designation of Form 17 from the date that it was signed by the last spouse or civil partner to sign it, and it needs to reach HMRC within 60 days.
Any submissions after this will be invalid, and any income before the form is signed will not be covered by the form.
If you have been affected by the abolition of the FHL tax reliefs, please contact us today.
