The taxation of joint property income depends on the relationship between the individuals holding the income-generating asset.
It is important to note that it is necessary to look at the beneficial ownership (not the legal ownership) for tax purposes.
It is possible to change the beneficial ownership, and therefore the taxation of income, by way of a ‘Declaration of Trust’, negating the need to make any changes to the actual legal ownership. However legal advice should always be sought before making any gifts in this way.
If the beneficial owners and the legal owners are not the same (e.g., the legal ownership remains in one individuals name), then there may be additional reporting obligations as HMRC require such arrangements to be registered on the ‘Trust Register’, more information on the Trust Register can be found here.
Unmarried Joint Owners
Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let.
However, joint owners can agree a different division of profits and losses, so the share of the profits or losses can be different from the actual share in the property. The share for tax purposes must be the same as the share actually agreed.
Married Couples / Civil Partners
Unlike unmarried couples (and with the exception of partnership income), the default position for married couples and Civil Partners is 50:50 regardless of the underlying ownership. Therefore, even if the underlying asset is owned unequally, say, 99% and 1%, in the absence of any further documentation each individual should account for 50% of the income arising.
However, if the couple want to be taxed based on their actual underlying ownership, then a ‘Form 17’ will need to be submitted to HMRC before they can declare the income in uneven percentages. A Form 17 will need to be accompanied by the evidence of the ownership split; either a ‘Declaration of Trust’ as referred to above, or the proof of legal ownership (such as the Land Registry document). The Form 17 cannot be backdated; it is only effective from the date the Form is signed, and on the understanding that it reaches HMRC within 60 days of being signed.
HMRC treats a valid declaration on Form 17 as continuing to apply in later tax years, until one spouse dies, the couple separate permanently or divorce, or the beneficial interest changes again and a new Form is submitted.
Furnished Holiday Lets benefit from a different treatment; even if held by spouses/Civil Partners, owners could choose how they wanted to split the income. However, the FHL regime is being abolished from 6 April 2025. This should prompt joint owners of FHLs to consider their positions going forwards.
Tax Planning Opportunities?
Unmarried joint owners have a great deal of flexibility when it comes to sharing income, so it’s always worth looking at your combined tax positions to ensure efficiency.
As transfers of assets between married couples and Civil Partners are undertaken on a ‘no gain/no loss’ basis for Capital Gains Tax purposes, planning opportunities may be available. However, there may be other tax implications to consider (e.g., Stamp Duty Land Tax), as well as non-tax considerations, so professional advice should always be sought.
