It’s no secret that divorce can be messy: emotionally, legally, and financially.
But what if a hidden tax rule meant you ended up with a bill for income you never actually wanted?
That’s exactly what happened in the recent Moss v HMRC case. If you’re separated and own property, this is one tax trap you can’t afford to ignore. Divorce and Tax can run closer than you think.
(Read Time: Approx. 3 minutes)
Topics Discussed:
- How rental income from shared property is taxed after separation
- Why Airbnb-style lettings can lead to a full tax bill for one party
The 42 Percent Divorce Reality for Tax
With 42 percent of marriages ending in divorce, the emotional fallout is only part of the picture.
For business owners and property investors, there are often serious financial consequences.
While many anticipate issues around capital gains tax or splitting assets, income tax is the silent threat that often gets missed.
That’s why the Moss v HMRC case is such an important example.
It reveals how divorce and tax liabilities can intertwine during separation, with one party potentially being hit with the full burden.
What Happened in Moss v HMRC
In this case, the husband left the UK and the family home.
The wife stayed behind with their children and let out a jointly owned rental property on Airbnb to help cover the bills.
Although she used the income to survive and support the family, she was taxed on all of it.
Despite still owning the property jointly with her estranged husband, HMRC said she was running the business and collecting the income.
As far as they were concerned, she owed tax on 100%.
Her argument was simple. She claimed it should be split 50-50 as it always had been.
But the court ruled against her.
When 50-50 No Longer Applies
While married and living together, couples with joint rental properties benefit from an automatic 50-50 income tax split under section 836(2) of the Income Tax Act 2007.
But when the relationship breaks down permanently, that split disappears.
At this point, section 271 of ITTOIA 2005 takes over, and tax is due based on who receives the income or has the right to receive it.
In the Moss case, the husband had walked away. The wife was the one managing the property, dealing with the guests, and handling the bookings.
This made her the de facto business operator in HMRC’s eyes, and she was therefore liable for the entire tax bill.
Airbnb and Holiday Lets Create Extra Risk
Things become even more complicated with furnished holiday lettings like Airbnb.
These businesses do not benefit from automatic income splitting, even if the owners are still married.
In these cases, HMRC doesn’t care about joint names on the deeds. They look at who is actually running the business.
Whoever handles the bookings, payments, and guest communication is responsible for the tax.
So, in the Moss case, even though ownership was shared, the tax bill wasn’t. The absent husband’s lack of involvement meant the wife was solely liable.
Fairness Doesn’t Count for Divorce and Tax
Yes, it might seem deeply unfair. The wife was supporting the children and maintaining the home while the husband lived abroad.
But in divorce, tax law isn’t about what’s fair, it’s about rules and definitions.
And those rules say that the person receiving and controlling the income pays the tax, regardless of how the money is used or who owns the asset on paper.
Even worse, HMRC used its discovery powers to go back several years and raise a backdated assessment.
These powers can reach up to 20 years in some cases where underpayment is suspected.
How to Protect Yourself
If you are separated or going through a divorce and own rental property, here’s what you should be doing right now:
- Keep a record of who is collecting the income and managing the property
- Notify HMRC of the permanent separation if it has taken place
- Make sure any legal agreements clearly define how income is allocated
- Consider including indemnities and tax warranties in your settlement
Don’t assume that joint ownership protects you. It might not.
Summary
Moss v HMRC is a stark reminder that tax law doesn’t operate on the principles of fairness.
Once a couple is separated, income from a rental property (especially an Airbnb or furnished holiday let) can become 100% taxable on the person managing the business, even if ownership is shared.
If you’re going through a separation or advising someone who is, make sure income tax isn’t the trap that gets overlooked.
Speak to our team at Tax Expert today.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel