Do you have joint rental income with your spouse?
Sep 07, 2018
If you own a property with your spouse, tax legislation provides that you are entitled to an equal share of any income you receive from this jointly owned property, even if your ownership proportions are different.
A ‘spouse’ for the purpose of this arrangement means a married couple or two civil partners who live together. It doesn’t refer to any property you own jointly with friends or family members.
The benefits of not receiving an equal share
There may be instances where it’s worth amending this automatic 50:50 share of income to reflect your ownership proportions instead, as it may mean that your joint rental income can be taxed in a more beneficial way. This can be particularly useful if one partner has a lower income than the other.
You can notify HMRC of your desire to change your income split into unequal parts by completing Income Tax Form 17. In order to do this, you and your spouse must own the property as ‘tenants in common’ as opposed to ‘joint tenants’. As joint tenants the 50:50 split cannot be amended, so if this situation applies you will first have to sever your joint tenancy agreement and instead become tenants in common.
There are legal costs associated with changing your property ownership from joint tenancy to tenants in common, and it might seem a hassle to alteryour existing arrangements and then set up Form 17, but the effort could result in significant tax savings each year.
Here’s a summary of how it works:
You purchase a rental property in which your beneficial interest is 80% and your spouse’s is 20%. Until such as time as Form17 is completed to highlight this 80:20 split matching your proportional ownership, your joint rental income must be split 50:50 for tax purposes.
Completing Form 17
When you complete Form 17 both spouses must make the declaration. In doing this, you will need to provide evidence that your beneficial interests are unequal, such as a declaration or deed of trust. Form 17 will only apply to rental income arising after the declaration has been made.
The form must reach HMRC within 60 days of the declaration being signed, otherwise it will be invalid. This means that you cannot backdate the declaration, and it cannot have any effect on income already earned before the declaration has been made.
The Form 17 declaration will remain in place until either:
- You stop living together
- There is any, even minor, change in the beneficial interest
We are becoming increasingly aware that HMRC are clamping down on property ownership between husband and wife being declared incorrectly. If you think this situation may affect you, or you’re unsure of where you stand, please do give us a call and we’ll happily discuss this with you further.