Save Tax: Adjusting the Split of Property Income Between Couples
The Income Tax Act 2007 (section 836) allows for income from properties that are jointly owned by married couples of civil partners that live together, to be legally split 50/50.
However, whilst most landlords are aware that income can be shared equally by married couples for tax purposes, we receive many phone calls at Less Tax 4 Landlords from landlords who are not aware of the possibility to make changes to this arrangement.
Changes to the default 50/50 split on property income can be declared using what’s known as Form 17.
Form 17 enables landlords to make changes to the default 50/50 split for tax purposes to reflect the actual ownership of the underlying assets. This is known as ‘actual basis’.
Where the partners have unequal income tax rates, it might make sense for the partner paying more tax to reduce their proportion of income by transferring a greater share of the beneficial interest in their property to their spouse or civil partner.
Given the section 24 tax changes, this can even result in the difference between a tax bill that the couple can afford to pay and one that sees them making a post-tax loss.
So what does Form 17 do?
You can submit Form 17 if you want to change the split of income to reflect your actual share of ownership, rather than being treated as if you own the property 50/50.
In order to change the split, you’ll need to provide evidence that your beneficial interests are unequal in the form of a declaration or deed.
Here are the facts:
- Form 17 is only used if the beneficial interests are unequal
- Form 17 can be used on any type of property provided it is held ‘jointly’ (excluding beneficial joint tenants)
- Form 17 cannot be used to change the income split back to 50/50
- You can do a deed of trust more than once
- The change in beneficial interests does not affect capital gains tax for married couples and civil partnerships though Stamp Duty Land Tax (SDLT) MAY arise if the transaction involves ‘chargeable consideration’ in the form of say a cash payment or transfer of debt
- Form 17 must reach HMRC within 60 days from the date of signature of the last spouse to sign; otherwise, it is invalid
Form 17 should not be used if:
- Income is from commercial letting of furnished holiday accommodation
- Income is from a partnership
- Income is from shares in a company
- Property is held as beneficial joint tenants where you are both jointly entitled to the whole of the property and income. (You will need to change the title ownership from Joint Tenants to Tenants in Common in order to declare unequal interest in the property)
Form 17 can be completed online at GOV.UK however it’s best to get advice if you are unsure about whether you are paying the correct amount of tax or have any doubt about:
- your beneficial interest in property held in joint names
- your beneficial interest in income from such property
- whether you should complete Form 17
What if we don’t own the property jointly?
You can still benefit from Deed of Trust work even if you don’t own the property jointly.
Want to learn more?
Less Tax 4 Landlord's conveyancing practice can provide a complete Form 17 service for you, including preparing the legal documentation and creating a deed of trust, plus filing the Form 17 paperwork.
If you would like to estimate your tax savings using Form 17 and/or Deed of Trust requirements, you can get a quote by visiting lt4l.co.uk/nrla-deed-of-trust or get in touch on 0203 735 2940.
Whilst Form 17 may help if your partner pays a lower rate of tax, if you are a portfolio landlord and a higher-rate tax payer then it may not be the best option and you should consider taking our free initial assessment to find out if you’re as tax efficient as possible. Visit lt4l.co.uk/nrla-assessment
The information in this article was provided by Less Tax 4 Landlords and you can read the original at https://lesstaxforlandlords.co.uk/landlord-tax-planning/how-a-married-couple-refinanced-their-property-portfolio-to-beat-the-tax-changes/
