As FHLs are excluded from the deemed 50/50 income rule for spouses, the income was disclosed in a more tax efficient manner. In view of the abolition of FHLs, does this mean that the exclusion from the 50/50 rule will no longer apply and that the income will be based on the equal ownership?“
A: The deemed 50/50 income rule of s836 ITA 2007 applies to income from property held in the joint names of spouses/civil partners living together. The legislation doesn’t refer to part of a property being so held nor does it refer to beneficial ownership, only to property “held in joint names.”
There are exclusions including Furnished Holiday lettings and so yes, s836 will apply from 6th April 2025 to such lettings from properties if they are held in joint names.
The property can be an asset other than land and property and HMRC provide an example of a joint building society account in TSEM9828.
As the property is only legally owned by your client, it is not property held in joint names and so is not subject to s836 at all.
See HMRC’s comments at TSEM9810:
Where spouses or civil partners are entitled to property and the income from it, but the property is held in the name of a nominee, then it’s not ‘property held by a married couple or civil partners. living together’, and the special rules do not apply.
Sometimes a married couple or civil partners hold assets jointly with others. The 50/50 rule does not apply in such cases. It applies only to income arising from property held in the names of individuals who are married to, or who are civil partners of, each other, and who live together. That excludes for example, a bank account held in the name of Mr and Mrs A and Mr B.
As s836 does not apply, the income is simply assessable in accordance with the beneficial ownership which will usually provide the entitlement to income. Property income is assessable under s271 ITTOIA 2005 on the person receiving or entitled to the income. This does not give taxpayers a choice as the person entitled to the income will always be assessable but the person receiving it may be assessable in the interim such as a letting agent.
If s836 ITA 2007 does apply to income from jointly held property, then it is deemed to be received 50/50. However, it is possible to give notice under s837 ITA 2007 (using Form 17) to be assessed on the actual beneficial ownership instead. If the beneficial ownership is also 50/50, then clearly no s837 notice can be given until the beneficial ownership is changed. As mentioned, this will not apply here as the property is not held in joint names.
Just because the deemed 50/50 income rule of s836 ITA 2007 does not apply does not mean anything goes as regards the allocation of income. Any attempt to uncommercially divert income to one part owner would simply be caught by the settlement legislation of s624 ITTOIA 2005 and so would not work. This is not something new and was covered in an earlier query that can be found here.
For commentary on income from jointly held property, see Direct Tax in Depth at 300-040.
For commentary on the settlement legislation, see Direct Tax in Depth at 356-000.
