In England & Wales, the joint ownership of property can be two forms:
We have seen that for married couples and civil partners, the default split of jointly held property income and ownership is 50:50. This can be changed by election. To make an election to change, you need to fill Form 17 and submit to HMRC. You can download Form 17 from here.
As per HMRC, you can use Form 17 to declare beneficial ownership if you meet all the conditions below:
But, bear in mind that this election cannot be made retrospectively. You can go a maximum of 60 days before the filing of the form assuming you have signed the forms at that time.
As per HMRC, you cannot declare unequal shares just for tax advantage. The declaration in Form 17 should reflect the actual beneficial ownership. Actually, HMRC wants to see proof of beneficial ownership which is usually in the form of a deed of trust. For example, you declared income split 10:90 between you and your wife in Form 17, but, in reality, you are the 100% beneficial owner. In that case, the election will be invalid.
If there is a change in beneficial ownership, then you can change the % split as many times as you like using Form 17. There is no limit. But, each time you change the income split, this needs to be supported by a change in beneficial ownership.
For unmarried couples or any two independent parties, the income is not automatically split as 50:50 as in case of married couples and civil partners. So, the joint owners other than spouses & civil partners can choose to share the income in whatever manner they decide. However, this proportion for tax purposes should follow the way the income is actually shared. For example, Rachael and Michael jointly own the property and shares the rental income in the proportion of 90:10. In this case, the tax treatment will follow actual treatment although the beneficial ownership may be 50:50.
So, Form 17 is irrelevant for other joint owners. However, I advise having some sort of agreement to show the split of rental income. Also, it is advisable to split the bank receipt for rental income in the proportion agreed to show it has been actually shared.
But, don’t confuse this income split with a share in beneficial ownership. Beneficial ownership is the proportion owned by you in the jointly held property. This should be decided when you buy the property. If you want to change this at a later date, there will be capital gains tax implication as the change will be treated as a part disposal for capital gains tax purpose.
We noted that the beneficial ownership of the property can be transferred as many times as you like. So, one tax planning strategy is to transfer the share of the property to the spouse before the sale to lower overall tax liability. This is fine only if properly done.
One of the important things to consider is whether the transferee is beneficially entitled to the money received from the sale. If he/she is not beneficially entitled, the transfer before sale may be invalid.
Another point to note is that the transfer of the property should be done before agreeing to the sale of the property. It is safe to make the transfer before the property is put on the market for sale.
Raju Gajurel is chartered certified accountant and chartered tax advisor with more than a decade’s experience in accounting and taxation. He helped thousands of clients as an accountant, auditor and tax advisor to achieve their financial success. He is passionate about in property sector and has the depth of expertise in property taxation. He has worked with wide range of clients from small clients to clients with more than £1 billion in assets. This experience places him in a unique position to provide unmatched advice in accounting and tax planning for property investors, property developers and property entrepreneurs. As himself being a property investor, he understands the depth of business issues faced by property investors. He also holds Chartered Financial Analyst (CFA) qualification from CFA Institute, USA. He also has in depth knowledge of investments, portfolio management and stock markets.
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