TC09535 - [2025] UKFTT 00595 (TC)

There was no dispute about the relevant law, which is set out, albeit briefly, below.

A taxpayer has a statutory obligation to notify HMRC if they are liable to income tax for any year of assessment (section 7 Taxes Management Act 1970 (“TMA”)).

If HMRC discover that an amount of income tax which ought to have been assessed, has not been so assessed, they can make an assessment to make good that loss of tax (section 29 TMA).

Where the assessment relates to failure to notify under section 7 TMA, the assessment can be made at any time within 20 years after the end of the year of assessment to which the discovery assessment relates (section 36 TMA).

Income Tax is charged on the profits of a property business under section 268 Income Tax (Trading and Other Income) Act 2005 ((“ITTOIA”).

The person who is liable to tax on the profits of a property rental business is the person receiving or entitled to those profits (section 271 ITTOIA).

In calculating those profits, no deductions can be allowed for capital expenditure, nor for income expenditure which is not incurred wholly and exclusively for the purpose of the business (sections 33 and 34 ITTOIA).

Revenue expenses incurred for the purposes of the business within seven years before the date on which a property rental business starts may be eligible for a deduction against the rental income (section 57 ITTOIA).

The general rule of apportionment of income tax for liability arising from rental income, is that where the property is held in the names of individuals who are married and who live together, they are treated for income tax purposes as beneficially entitled to the income in equal shares (section 836 Income Tax Act 2007 (“ITA”)).

Under section 1011 ITA, married individuals are treated as living together unless, (inter alia) they are in fact separated in circumstances in which the separation is likely to be permanent.

The general rule of apportionment does not apply to income arising from a UK property business which consists of (or includes) the commercial letting of furnished holiday accommodation (“the FHLexclusion”).

Under section 323 ITTOIA, letting is commercial if the accommodation is let on a commercial basis with a view to the realisation of profits. It is furnished holiday accommodation if the tenant is entitled to use furniture in connection with the use of the accommodation, and during the relevant period the accommodation is available for commercial letting as holiday accommodation for at least 210 days and is actually let out during that period for at least 105 days (section 325 ITTOIA).