Existing tax rules associated with furnished holiday lets, that are jointly owned by married couples, are packing their suitcase and disappearing into the horizon!
We caught up with our tax team to understand more about the changes. Here we understand what the old tax rules linked to furnished holiday lets were, how they are changing and who needs to act.
Importantly, with changes coming into play from 5th April 2025, we look at what steps you can take to be prepared.
Who should be reviewing these important tax changes linked to furnished holiday lets?
Partners, whether married or in a civil partnership, who jointly own a furnished holiday let should be reviewing the new tax changes.
Why should partners, who jointly own a furnished holiday let, be concerned by the new tax changes?
From 5 April 2025, the special tax rules currently in place are changing.
How are the tax rules linked to partners of furnished holiday lets changing?
Under the current system, married couples can generally divide the rental income between them as they choose, providing it is commercially justifiable.
After April 2025, married couples will need to ensure they own the property in the desired proportion and fill in a special form (called Form 17) if they want to split their income unequally. See point 6 below!
This form must reach HMRC within 60 days of signing, or the income will be split 50/50 by default and this could increase your tax bill.
Anne McCoubrey, Tax Manager at Walker & Sutcliffe comments:
“Up to now, taxpayers might include most of the rental income on the return of the person looking after the rental business, but the property is owned jointly. Often the person looking after the rental pays tax at a lower rate. From 6 April 2025 the rental income will be split 50:50 for tax purposes, regardless of who does the work. This means that the ownership aspect, which is often the most complicated item to sort since it requires lawyers, must be addressed to match the split detailed on the Form 17 declaration.”
Does this new ruling impact non-married owners?
No, non-married owners can still split the income in different proportions.
Form 17 declaration – what’s that?
Form 17 declaration is a special form that MUST be completed if couples want to split their rental income unequally.
What else should we consider when completing the Form 17 declaration?
There are some details for the furnished holiday let co-owners to bear in mind when considering a Form 17 declaration:
- The declaration must be made jointly by the joint owners.
- The declaration must reach HMRC within 60 days of being signed and dated by both parties, it is recommended that this is dated no earlier than 6 April 2025.
- The declaration cannot be backdated.
- If the form does not reach HMRC within 60 days, it is invalid and a fresh declaration will need to be made;
- A separate declaration must be made for each property;
- HMRC will require evidence that the unequal beneficial interests are in the proportion set out in the declaration – normally, a deed of trust or a deed of assignment.
- This will require lawyers, and you may need to change ownership, which has other tax implications, e.g. capital gains tax, stamp duty land tax and inheritance tax.
- Once the Form 17 declaration has been made, it is permanent.
- The joint owners cannot go back to being taxed 50:50 on that property unless there is a later change in the beneficial interests to own the property equally.
Help in navigating changes.
If you need help in navigating and understanding the implications the Walker & Sutcliffe tax team is here to help.
Contact us to arrange a call.