Jointly Owned Property And The Use Of HMRC Form 17
Income Tax vs Capital Gains Tax ...
Surely, if a rental property is owned as tenants in common and the beneficial ownership is split 70:30, this is the split that we can declare on our tax return, right?
Married couples need to use HMRC Form 17 if they wish to be taxed other than 50:50!
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That is a question that I am often faced with and my answer is usually, "well, it depends" at which point the person I am talking to probably sighs.
The legislation around how to declare income from jointly owned property for Income Tax purposes is confusing and often completely misunderstood.
The answer depends primarily on whether the co-owners (the tenants in common) are married or not:
Where a property is owned by unmarried individuals, or is held in a partnership, the tax follows the beneficial ownership rather than legal ownership.
This does not mean that the rental profit or loss must be allocated in the same proportion as the underlying beneficial ownership. Rather, the owners can agree on a different split as they see fit, the proportion referring to profits and losses only, and not necessarily to the capital received should the property be sold. Form 17 is irrelevant to unmarried owners of joint property however held.
Married couples (and civil partners)
Income from property held jointly by married couples and civil partners is treated as beneficially owned by the individuals in equal shares, even if, in reality, the property is owned in unequal shares. Consequently, they are taxed on the income 50:50.
This rule can only be disapplied if a Form 17 is filed with HMRC and only then where the property is owned as tenants in common.
A Form 17 declaration can only be filed if the individuals are beneficially entitled to the income in unequal shares, say 70:30 as mentioned above. Married couples and civil partners do not have the option to have income taxed however they like.
Evidence of the property being owned in unequal shares must be provided to HMRC with the Form 17. This is usually done by way of a formal Declaration of Trust that can be drawn up by a solicitor.
Once a declaration is made, it remains in force until the couple's interest in the property is changed, the couple separate permanently, or one of them dies.
A Form 17 is not required for a property that qualifies as a Furnished Holiday Let or is held by a partnership.
"And what about Capital Gains Tax?"
Regardless of how the rental income is treated for Income Tax purposes, it is the underlying beneficial ownership that determines the Capital Gains Tax treatment, therefore in the absence of a Form 17, the income may be taxed on a split of 50:50 but the actual capital gain, for example, may be split 70:30.
As always, you should seek professional tax advice and I'm happy to help you when you call me on or click here to send me an email enquiry and let's see how I can help you.
Until next time ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.