Furnished holiday let tax warning

If you own a furnished holiday let (FHL), you will probably know that the way you are taxed on income has changed. Until April 2025, the tax regime for FHLs was more favourable that it was for normal private rental properties. Since then, furnished holiday let tax rules have been brought into line with private rental homes. However, if you own an FHL jointly with a spouse or civil partner, there’s one rule change you should be aware of.

A little-known furnished holiday let tax rule change

If you own a rental property jointly with your spouse or civil partner, HMRC automatically assumes that any income from it will be taxed as a 50/50 split.

However, before 6th April 2025, married or civilly partnered co-owners of FHLs were taxed on their share of the property income. This is no longer the case. Bringing the rules into line with other private rental properties, HMRC will assume each person will be taxed on 50% of the income.

If you own unequal shares of a furnished holiday and wished to be taxed proportionally, you now have to tell HMRC (and prove what proportion of the property each person owns).

Why get taxed on different proportions of properties?

There can be good reasons for getting taxed on different proportions of a property.

Imagine your FHL delivers an annual income of £20,000. Unless you tell HMRC otherwise, you’ll each be taxed on £10,000.

This means that, if one person is a higher-rate taxpayer and the other is a basic-rate taxpayer, the former will pay more Income Tax. The higher-rate taxpayer will be charged tax at 40%, or £4,000 of their £10,000 share. The basic-rate taxpayer will pay 20%, or £2,000.

This arrangement can be unfair if the higher-rate taxpayer owns less than half of the property.

This is when it’s likely to be a good idea to tell HMRC what percentage of a property each person owns.

Let’s say you demonstrate to HMRC that higher-rate taxpayer owns 30% of a property and the basic-rate taxpayer owns 70%.

In this instance, the higher-rate taxpayer would then pay 40% tax on £6,000. This would mean a bill of £2,400. The basic-rate taxpayer would pay 20% on the remaining £14,000. This equals a bill of £2,800.

In other words, the total tax bill for both people would add up to £5,200 – a saving of £800.

How can I change my furnished holiday let tax share?

HMRC does offer an online form. This allows you to provide evidence of the percentage of the property owned by each party.

This means you’ll need things like the property deeds, mortgage statements and other relevant documents. For this reason, we’d recommend talking to one of our accountants. They’ll be able to advise you on how to make the application. They’ll also help you avoid common pitfalls. For example, they’ll advise you that HMRC needs to receive the form within 60 days for it to be valid.  You can’t backdate a form: it is only valid from the date you sign it.

Should I change my FHL tax arrangements?

If you and a spouse have unequal shares in a rental property or FHL – with a basic-rate taxpayer owning a larger proportion than a higher-rate taxpayer – then it may well be worth letting HMRC know. However, before you rush into doing this, we recommend you look more deeply into the rules regarding rental income and married or civilly partnered couples – they can be very complex. That’s one reason we offer you a spousal transfer suitability report. It helps to make sure that changing your tax arrangements is beneficial. To learn more about this service, get in touch with us today.