We’ve featured Furnished Holiday Lets (FHL) a number of times over recent years as they have proved popular with farmers looking to diversify their income. However, with changes to the tax regime now enacted, they’re likely to become significantly less popular. Until April this year, married couples and civil partners with an FHL could allocate profits unequally, giving them the opportunity to apportion more income to the partner due to pay less tax.
This could be very tax efficient if one partner wasn’t working and still had their personal allowance intact. But as of April, this regime has been abolished, and now, unless action is taken, it is very unlikely that profits must be allocated 50:50 between both partners. That’s because from 6 April 2025, FHL was brought in under the same tax regime as all other rental properties.
Form 17 declaration
However, all might not be lost as some hope does exist in the shape of a form 17 declaration. A Form 17 declaration enables married couples or
civil partners to take income based on their actual shares in the property, rather than a 50:50 split. This is known as the ‘actual basis’ rather than the default equal split.
There are several circumstances in which a Form 17 declaration should be made, and these apply to FHL the same as they would any rental property. If, for example, there is a genuine unequal distribution of shares between partners in the property, and it is tax advantageous to highlight this, Form 17 is the way to do it.
However – and this is where the issue gets interesting – there is also no capital gains tax to pay if shares are gifted between spouses or civil partners, meaning if you currently own an FHL equally but wish to restructure that for tax purposes, it may well be possible.
Whitley Stimpson partner and tax expert, Ian Parker, said this could offer a lifeline to couples hit by the regime. He said:
“It is possible to re-allocate shares in an FHL between spouses or civil partners without incurring any capital gains tax. “Once this is done, a Form 17 declaration needs to be made within 60 days, but that will enable the couple to allocate the profits from the property in line with the new sharing ratio, rather than on an equal footing. “This will have the effect of reversing the change in the tax regime and enable couples to split the tax burden as they see fit.” However, Ian added there are potential pitfalls of this approach. “First of all, the process around making a Form 17 declaration can be complicated and you would definitely need professional advice,” he said. “Also, if considering this you need to think long-term. What happens if the spouse who is allocated the majority shareholding suddenly starts to earn more money either due to a promotion, career change, or going back to work? Will the tax benefits still be worthwhile? “Secondly, and no one wants to think about it, but what will happen in the case of a relationship breakdown? Allocating shares for free in an asset you previously owned equally could backfire when it comes to splitting up the family estate. “So, you need to tread carefully.”
For more advice on a Form 17 declaration, contact Ian Parker on (01295) 270200 or email ianp@whitleystimpson.co.uk