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Q&A: Can I declare my rental income as my wife’s?

Ben Chaplin

Q: I own an investment property with my wife which is rented out, and we declare the income on our respective tax returns. I am now a higher-rate taxpayer, while my wife is a basic rate. Is it possible to simply declare the majority of the income as my wife’s?

A: Spouses (and civil partners) generally own joint property as ‘joint tenants’, which means that each person has equal rights regarding the property and, on death, it passes automatically to the other.

The income from a jointly owned property is taxed either on a 50:50 split or the beneficial entitlement. Where property is held in joint names, HMRC will assume it is owned equally for income tax purposes, with income and expenses simply split in half between the spouses. This, however, is not the case where it is actually owned in a proportion differing from 50:50 and a declaration is made to that effect. The declaration, which is made on Form 17 (available on HMRC’s website) can only be made if the beneficial ownership of the property matches the split of the income. Form 17 must be signed by each party and submitted to HMRC within 60 days of the later signature. It only takes effect from the date signed and cannot be backdated. Evidence of the beneficial ownership has to be submitted to HMRC at the same time of submitting Form 17. If no declaration is made, the income will continue to be taxed on a 50:50 basis regardless of the beneficial ownership.

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If the ownership of the property is as joint tenants, in order to change the beneficial ownership of the property, it needs to be transferred into joint ownership as tenants in common. This must be completed formally, for example by a deed, and is best completed by a solicitor to ensure all is correct. The beneficial ownership split is decided by the spouses, and as mentioned above, in order for the rental profit (or loss) to be split in the same ratio, Form 17 is then completed. It is important to remember that where property is held as tenants in common, each spouse may dispose of their respective share as they wish, either while alive or on death.

Care needs to be taken if the property is mortgaged. If the transferee takes over responsibility of the mortgage, this debt is treated as consideration and Stamp Duty Land Tax may be payable depending on the amount.

When the property is sold, it is the underlying beneficial ownership of the property that determines the Capital Gains Tax treatment, so it may be worth considering this again prior to any disposal.

Ben Chaplin is managing director of Taxwise