One of the most common questions asked by those in receipt of income from land and property is how the income is shared between husband and wife or civil partners.
HMRC assume that when you buy a property/investment property its owned in the ratio 50/50 between husband and wife or civil partners living together and is set out in the Income tax Act s 836. It must be kept in mind however, this rule will not apply in any of the following instances:
- the income is from furnished holiday lettings;
- there is actually a partnership in which case the income is divided according to the terms of the partnership agreement;
- both husband and wife, or both civil partners, have signed a declaration stating their beneficial interests in both the property and the income arising from it.
When you make a declaration it must apply equally to ownership and income and a couple must be married or civil partners, you can’t be separated or divorced or joint tenants.
If you wish to make a declaration Form 17 is used.
You can use this form to declare a beneficial interest if you hold property jointly and:
- you actually own the property in unequal shares, and
- you are entitled to the income arising in proportion to those shares, and
- you want to be taxed on that basis.
Form 17 must be submitted with in 60 days of completion and in many cases a Declaration of Trust is likely to be required. You may wish to seek the advice of a solicitor to draw up a declaration to ensure legal compliance.
If there is a change, even a minor change, after submitting the Form 17 it will be invalid and automatically default to the standard 50/50 split.
If the property is held in a single name it may be possible to use a declaration of trust to confirm joint beneficial interest.
Income Tax and Capital Gains Tax will be based on the beneficial interest in the property, so if one spouse is a higher rate tax payer and the other a lower rate tax payer changing the proportion of ownership could have a significant tax advantage.
There is no default ownership for unmarried property owners and property owners may also need to agree the split with their mortgage lender.
For more detailed guidance read this advice from HMRC https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9000