Woman Solely Liable for Tax on Rental of Jointly Owned Property

In a recent decision, the First-tier Tribunal (FTT) has held that a woman was solely liable for income tax on profits generated from the letting of a jointly owned property, rejecting her claim that her estranged husband should bear responsibility for half of the tax liability.

The case concerned a property purchased jointly by the appellant and her husband in 2013. In 2015, the husband relocated to Bangkok for business purposes and granted his wife a power of attorney to manage various affairs relating to the property. Their communication ceased in November 2016, after which the wife considered the marriage to be over. With no financial support from her husband and no mortgage contributions being made, she began letting the property on Airbnb in 2017. The property was sold in 2020.

The appellant failed to declare the rental income on her tax returns. Following an enquiry, HM Revenue & Customs (HMRC) issued discovery assessments totalling £10,749 in respect of the 2017/18 to 2019/20 tax years. A statutory review upheld the assessments, prompting an appeal to the FTT.

Under Section 271 of the Income Tax (Trading and Other Income) Act 2005, liability for income tax on property rental profits rests with the individual receiving or entitled to the profits. The default rule under Income Tax legislation is that spouses who jointly own property and are living together are treated as equally entitled to income. However, this presumption does not apply in the case of furnished holiday lettings (FHL).

HMRC argued that the appellant had conducted the rental business independently, and her husband had not participated in or received income from the lettings. As they were no longer cohabiting and the property was used for FHL purposes, the equal apportionment rule was not engaged.

The FTT agreed with HMRC’s position. It found that the letting business was managed solely by the appellant, and the power of attorney did not confer any beneficial entitlement to her husband. His indirect benefit from the income - such as through mortgage reductions - did not entitle him to any share of the profits for tax purposes.

Accordingly, the appeal was dismissed and the appellant was held fully liable for the tax due on the rental income.