Furnished holiday letting - husband and wife

How to determine share of profits between husband and wife for a FHL

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I have a client who owns a furnished holiday let with his wife. 

Looking at HMRC guidance TSEM9820 https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-...

TSEM9820 - Property held jointly by married couples or civil partners: The 50/50 rule: Income from furnished holiday lettings

The 50/50 rule does not apply to income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation.If a spouse or civil partner carries on the activity alone: that spouse or civil partner is taxable on the income. If a spouse or civil partner carries on the activity with others: the income is split for tax purposes in the way the parties have agreed to split the profits amongst themselves.

So my question is, does there have to be a basis or reasoning for deciding what the split can be? So if the wife does say 80% of the work in managing the FHL, does she need to have 80% share of the profit, or can they agree for the husband to have 80% share if that is more tax effcient?

Thanks for reading.

 

Replies (5)

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By Tax Dragon
13th Sep 2022 23:08

I'm getting good at this... I read your post and thought 'first time poster'.

Anyway, it's a good question. The rules surrounding tax-motivated profit sharing with no commercial justification are getting harder and harder to follow (there must be about a billion sections starting 809 now).

Guidance and policy papers aren't much easier. Here's one https://www.gov.uk/government/publications/mixed-membership-partnership-... from a few year back. Not sure it speaks to your question, mind, but it shows the direction of travel of related anti-avoidance in general.

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By possep
14th Sep 2022 07:22

One FHL is not the commercial letting of furnished letting holiday accommodation from a UK property business.

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Replying to possep:
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By richard thomas
14th Sep 2022 09:06

Yes it is, unless it's EEA FHL in which case it's a letting from an overseas property business. What makes you think otherwise?

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By Hugo Fair
14th Sep 2022 12:42

"if the wife does say 80% of the work in managing the FHL, does she need to have 80% share of the profit, or can they agree for the husband to have 80% share if that is more tax efficient?"

Unhelpful (non-)answer time ...
So presumably wife is HR and husband SR, but wife is left to do majority of work in managing the FHL?

FWIW, in my experience HMRC are particularly 'less than happy' when they spot the ratio being changed every year (especially where those changes align with changes in PA or one of the individual's earnings that year).
But tracking down the definitive source for that attitude is currently beyond me.

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By plummy1
14th Sep 2022 16:50

Hello,

I'm not an accountant but am involved in doing capital allowances claims on furnished holiday lets. Our understanding is the law allows for the couple to decide on the split on profit regardless of level of ownership or input into the business. FHLs really are the gift that keeps on giving in terms of tax treatment.

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