95/5% tenants in common
95/5% tenants in common
We are getting close to completion on the purchase of our holiday cottage. Our financial advisor had mentioned that if we buy as 'tenants in common' with a 95%/ 5% split (95% in my name as I am not a tax payer) that my husband doesn't even need to declare anything (he is PAYE so currently doesn't fill out a tax return form) and that he wont need to start filing a tax return form. Is this correct to your knowledge? I am going to have the bank account, bills etc all in my name. And will I be able to have the council tax/ business rates in just my name??? Thank you in advance- seeing the solicitor later this morning so may learn more, but wanted some experienced opinions!
IANAL, but that that is how it works in my case. OH is on paye and has no involvement in my business whatsoever. I submit a tax return in my name only for the business. I'm not so sure about the 95/5% split. As far as I know, so long as you are 'tenants in common', that would suffice. We are just split 50/50.
hmm.. having just read up on this a bit more, it would seem that if a property is owned jointly (even as tenants in common), any income from the property is treated as being split 50/50 for tax purposes unless you file a Form 17 with HMRC to change the split of income to the actual share of ownership (in our case 95/5). Think I need to check all this again with the financial advisor... This is the bit I have not been looking forward to dealing with!
Also, think long term. You will be eligible for capital gains tax when you sell your property and if the ownership is split 50:50 then you both can use your capital gains tax allowances. You would have a much bigger tax bill if you say you own all or 95%of the property.
You are probably better taking advice from an accountant who deals with property.
You are probably better taking advice from an accountant who deals with property.
I believe that the rules for furnished holiday lets are different to other business income. I copied this from a tax website several years ago (2011):
"Division of profits between Married Couples/Civil Partners

Because the income from furnished holiday letting is currently considered to be "trading" income, it has been possible to divide this income between owners in such a way as they choose. Normally this would be to allocate losses to the higher earning partner, or profits to the partner with the lower income. If you have problems convincing the Revenue of this, cite ITA07/S836 (3) Exemption D."
"Division of profits between Married Couples/Civil Partners

Because the income from furnished holiday letting is currently considered to be "trading" income, it has been possible to divide this income between owners in such a way as they choose. Normally this would be to allocate losses to the higher earning partner, or profits to the partner with the lower income. If you have problems convincing the Revenue of this, cite ITA07/S836 (3) Exemption D."
A general question on this theme...my partner and I are both tax payers, he at the higher rate, myself at the lower rate. If our (so far theoretical) holiday let makes a loss initially, does this ruling mean that the loss (if applied to him) will reduce his income tax bill? Sorry if the question is a bit obvious, but our potential margins initially will be very tight and this kind of info is good to know! We are not married or civil partners, but will consider the business as a 50/50 split.SusanMay wrote:I believe that the rules for furnished holiday lets are different to other business income. I copied this from a tax website several years ago (2011):
"Division of profits between Married Couples/Civil Partners

Because the income from furnished holiday letting is currently considered to be "trading" income, it has been possible to divide this income between owners in such a way as they choose. Normally this would be to allocate losses to the higher earning partner, or profits to the partner with the lower income. If you have problems convincing the Revenue of this, cite ITA07/S836 (3) Exemption D."
Entry level with some experience!
The rules about FHL and tax losses changed a few years ago. Then, if you made a loss, you could offset the loss against tax payable on other income. This got changed though, and now you will just transfer your loss from your property over to the following year for your property.
In theory, if you made a profit in year 2 then the previous years loss would reduce your tax bill.
I am really not sure about the comment about splitting up "trading income". We have a very good accountant who has property himself and he has never suggested we could split the "income " any way other than 50:50. He says it is considered "unearned income" by the tax man. Would be happy to change my view if there is enough evidence otherwise.....
In theory, if you made a profit in year 2 then the previous years loss would reduce your tax bill.
I am really not sure about the comment about splitting up "trading income". We have a very good accountant who has property himself and he has never suggested we could split the "income " any way other than 50:50. He says it is considered "unearned income" by the tax man. Would be happy to change my view if there is enough evidence otherwise.....
[/quote]I am really not sure about the comment about splitting up "trading income". We have a very good accountant who has property himself and he has never suggested we could split the "income " any way other than 50:50. He says it is considered "unearned income" by the tax man. Would be happy to change my view if there is enough evidence otherwise.....
Here is a link about 'form 17'- beginning to think I've been looking into this a bit too deeply...!
https://www.gov.uk/government/publicati ... -income-17
The advise to us for the last few years (from a specialist FHL accountant) has been that we can allocate the profit in whatever ratio we decide. As has been mentioned you can't use a loss to reduce your PAYE tax burden.
I work but my partner does not so we current both complete a tax return declaring the income as 100% hers.
I don't think any of us here are qualified to give advice so as always it is worth paying an accountant.
I work but my partner does not so we current both complete a tax return declaring the income as 100% hers.
I don't think any of us here are qualified to give advice so as always it is worth paying an accountant.
There is evidence out there if you google (see HMRC Guidance manuals PIM1030 Jointly Owned Property and PIM4105 Furnished Holiday Lettings) that the profits or losses should be split in the way that the parties agree for FHLs. I guess what causes confusion is that income from furnished property lets is treated differently to income from other property, hence Ianh100’s comment that he has a specialist FHL accountant is key to this.
When two or more people decide to share the ownership of a valuable item, be it a freehold or shares in a private company, or indeed anything like that, they or any one of them may be blind to the long term consequences of their decision.
For the present, the proportions in which they decide to take ownership may create excellent tax saving advantages, but do those people think beyond the present and realise that the proportions of ownership which they have willingly accepted also apply to the net proceeds of sale when that item is sold, perhaps many years down the line?
In my experience, accountants, tax advisers and the like, so often are only considering the perfectly genuine tax benefits to their clients when they advocate joint ownership in certain proportions. They do not consider the personal relationship between the joint owners, either now, or more particularly what it might be in the future.
So when the advice is to split ownership between 2 people 95/5 and the net proceeds from a sale, which takes place sometime way into the future is say £100,000, one person will be entitled to receive £95,000 while the other £5,000. You have to ask yourselves is that what you really want?
For the present, the proportions in which they decide to take ownership may create excellent tax saving advantages, but do those people think beyond the present and realise that the proportions of ownership which they have willingly accepted also apply to the net proceeds of sale when that item is sold, perhaps many years down the line?
In my experience, accountants, tax advisers and the like, so often are only considering the perfectly genuine tax benefits to their clients when they advocate joint ownership in certain proportions. They do not consider the personal relationship between the joint owners, either now, or more particularly what it might be in the future.
So when the advice is to split ownership between 2 people 95/5 and the net proceeds from a sale, which takes place sometime way into the future is say £100,000, one person will be entitled to receive £95,000 while the other £5,000. You have to ask yourselves is that what you really want?
So now being clear that as a FHL we can choose how to split the income (meaning I can run the business and declare the profits as my income) I have been advised by an accountant that it makes no difference (for tax purposes) whether we buy as Tenants in Common or as Joint Tenants. I am erring on the side of joint tenants unless there are any other reasons that any of you LMH veterans can advise?? Thank you so much for sharing your knowledge/ experiences!
Both the financial advisor and the conveyancing solicitor said to ask the accountant, and the accountant said to ask the solicitor!Bunny wrote:Tenants in Common is more related to will legality. A lot depends on whether you have a will and intend to leave the property to any dependents. Your purchasing solicitor will best advise you regarding this and not your accountant.
Still, the accountant eventually said for tax purposes it makes no difference, so will also check with the solicitor for any other reasons either way. Nearly there....and thanks!