Property income. Income division if WEEKLY letting.

[thehiker99]

My wife and two sons own a flat in the UK, (Equal shares, ie 25% each), which is let out on a weekly/short term basis, NOT a permanent let.
My wife looks after it, does the change overs etc. We regard it has her business. The property is on Business Rates, NOT Council Tax.

Does the fact that it is let out on a weekly basis change how the income should be taxed?
(which is, I believe normally according to ownership share).

I am aware that income should normally be split according to % ownership of a property, but have also been told that if it is a weekly/short term letting flat, you are classed
as a "Trader", and can divide the income as you see fit.
If I take a part (presumably 25%) of this income, it will tip me into the 40% tax band.
Prefer not to do that.

[thehiker99]

Slight typo, "My wife and two sons own a flat in the UK" should read "My wife and I, and our two sons own a flat in the UK"

[jerome.lane]

If your sons are under 18 and you provided the funds for their equitable interest, then you will be liable to income tax on their share too. Husband and wife who jointly own property are usually taxed according to their equitable interest. Where you have a genuine partnership, it is possible to share income according to each partners effort rather than capital interest. You should seek tax advice as there could be other factors affecting the treatment. You could also gift your interest to your wife and reduce your income that way. Again, you should seek professional advice to make sure you take the best route for your families circumstances.

[thehiker99]

Both my sons are over 18, one is a student, the other has no income.
I had been led to believe the way property income has to be divided, was dependent on whether the property was let on a short term letting arrangement, versus permanent
letting. (ie someone lives in the flat permanently)

My wife certainly does all the work to do with the letting, cleaning, laundry, bed making, polish, scrubbing, arranging, etc, between lets. Often on a weekly basis.
We see it as her "job" so to say.
I have very little to do with it.

[jerome.lane]

The length of letting can affect the tax treatment if the conditions for a furnished holiday let are met, although this doesn’t preclude the ability to share income in the most beneficial way. What you describe certainly has merits for you to not have an income share but you should seek tax advice and properly document the arrangement.

[thehiker99]

Jerome.
Unfortunately this is all in the past. It's only come to light because we are in the process of switching from short term, holiday type letting, to letting the flat permanently.

My previous accountant told me that because it was short term letting, my wife would be thought of as a "Trader", (His words), and we could therefore divide up the income from this flat as we saw fit. ie in the most tax efficient way. Also the fact that she does all the work (ie the weekly changeovers), involved in running the short term letting arrangement, seemed, in my accountant's view, to reinforce this way of handling the income. ie it's HER business. I have little to do with it, neither do our sons.

I now have a different accountant, and she's telling us that the income should always have been divided up as per the legal owners of the flat, which in this case is 4 of us.
I'm therefore confused, and not sure if I want to open a can of worms from the past, by now changing how the income is divided, once we get a permanent tenant into the flat.

[jerome.lane]

Thanks don’t think there’s anything necessarily wrong with your previous accountants approach although the terminology used isn’t great. Your wife seems to actively manage the property so there’s an argument for a commercial arrangement which allows the income to be appropriated to your wife. You might want to give me a call to discuss. It’ll be easier than battling it out on a forum! Best regards, Jerome