Furnished Holiday Lettings

Two friends purchasing holiday let

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Hi all

I have two individuals that have jointly purchased a holiday let (50/50 ownership)

My question is that if a formal partnership is set up for the holiday let, can profits be apportioned at a different rate than 50/50 (ie the rate that the two individuals own the property).

Many thanks

Replies (12)

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By Duggimon
02nd Sep 2016 13:59

Are the two individuals married? I presume not, going by your question and therefore the answer is irrelevant as they can split the income however they like.

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Replying to Duggimon:
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By simonhyett
05th Sep 2016 13:34

Hi there thanks a lot for the input. When you say the answer is irrelevant, a partnership does not have to be setup? They are not married.

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Jennifer Adams
By Jennifer Adams
05th Sep 2016 15:46

duggimon is right - its only when married that you have to arrange for the property to be in different split from 50:50 otherwise its your own decision (and submit form 17 etc etc. See here for article on subject. Doesnt matter whether its a holiday let or not.
https://www.accountingweb.co.uk/tax/personal-tax/property-tax-form-17-ge...
I would just say one thing though... please get a solicitor to draw up the agreement. I'm going to court next week with a client who has done exactly as yours - ie friends buying property - and its not been a happy arrangement. One says the other has taken more out of the bank account than the other - you know the type of thing. The solicitors costs sorting this out have been horrendous.

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By Jack Spratt
05th Sep 2016 18:30

Why do people post a question anonymously and the give the game away by adding a response later - which as far as I can see cannot be done anonymously.

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Replying to Jack Spratt:
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By simonhyett
06th Sep 2016 10:09

Maybe people post anonymously because not all have a name as catchy as Jack Spratt

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Richard Hattersley
By Richard Hattersley
07th Sep 2016 16:59

I've had to remove some inappropriate language in this thread. Let's keep it clean.

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By Jack Spratt
07th Sep 2016 18:35

I don't agree with cheekychappy and I certainly don't agree with JCresswwllTax wrote which has been removed because it used "inappropriate language" - but which I can still see on my phone! This is partly because my "daily digest" comes in totally random periods through out the day.

It happens because as we all know this newish version of Any Answers is {insert you own inappropriate words and save Richard's time}.

Clearly the people who wrote it didn't review it or test it properly.

Didn't they know that it was intended to be used by accountants (for a clue see the name). Didn't they know that accountants are {inappropriate word} for detail and would pick it to pieces if it was {IW}?

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By brianarm
09th Sep 2016 11:53

In response to your question, purchasing a holiday let with a view to renting it out to unconnected persons as an arms' length transaction, will be viewed by HMRC as commercial activity. Formal or otherwise, a partnership will have been established & I completely concur with JAADAMS that your clients should engage the services of a good solicitor with proven experience in the property rental arena, to draw up a partnership agreement.

As previously stated, the 50/50 rule only applies to married couples, so the partnership agreement should stipulate the percentage split between each partner - usually based on the percentage financed. Remember that each partner will be jointly & severally liable for all debts of the partnership irrespective of their percentage ownership, so getting a good solicitor is imperative.

With changes coming into effect shortly on how rental profits are calculated & the relief restrictions on the interest payable on any financing obtained, you should have some scope here for tax planning.

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By JD
09th Sep 2016 15:54

Sorry to the earlier answers, but isn't a FHL an exception to the 50/50 rules

ITA2007 s836, Jointly held property

(1) This section applies if income arises from property held in the names of individuals—
(a) who are married to, or are civil partners of, each other, and
(b) who live together.

(2) The individuals are treated for income tax purposes as beneficially entitled to the income in equal shares.

(3) But this treatment does not apply in relation to any income within any of the following exceptions.

Exception D

Income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

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By Comptable
10th Sep 2016 13:09

I disagree with brianarm who says that the partnership agreement should state the % split between the partners.

This would restrict the ability of the partners to be flexible and would significantly limit tax planning.
The agreement should provide for profits to be share "as agreed by the partners from time to time" with a backstop of 50/50 (or whatever) if there is no agreement.

Maintain flexibility as much as possible.

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By sallyrichardson
11th Sep 2016 19:01

Hello,

We look after someone with a FHL and were told directly by the HMRC that, with weekly bookings, cleaning, advertising etc it involves a lot more work than a normal property let, so is considered a full business and the person running the business can keep all of the profit, even if it is jointly owned. If both parties equally run the business, then I guess you would still split the profits - but in our case only one of the two does all of the work. You could confirm this by calling them - hoping of course that advice from them is consistent....!

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Replying to sallyrichardson:
By JCresswellTax
12th Sep 2016 09:22

Quote:

Hello,

We look after someone with a FHL and were told directly by the HMRC that, with weekly bookings, cleaning, advertising etc it involves a lot more work than a normal property let, so is considered a full business and the person running the business can keep all of the profit, even if it is jointly owned. If both parties equally run the business, then I guess you would still split the profits - but in our case only one of the two does all of the work. You could confirm this by calling them - hoping of course that advice from them is consistent....!

Ha ha ha, the last person you ever ever ever take advice from is HMRC.

Although they have been correct on this occasion, do not let it fool you!

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