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Ownership (1)

By default, rental profit from property jointly owned by spouses/civil partners is taxed 50:50 irrespective of the underlying respective proportion of actual ownership. (This does not apply to property held within a partnership business proper.)

However, if it would be more income tax efficient for the split of profit to be different, then the profit may be divided according to actual ownership once HMRC has been notified. A couple may also change the underlying ownership to suit, but note that such unequal ownership can be achieved only as ‘tenants in common’.

Most importantly, a Form 17 ‘Declaration of beneficial interest in joint property and income’ must be filed with HMRC within 60 days of the date of signature (this restriction is strictly applied).
Evidence of beneficial interests in the property being unequal must be submitted with the signed Form 17 in all cases (e.g. the signing of a declaration of trust or a deed of arrangement).

The declaration comes into effect from the date of signature (i.e. it cannot be back dated) and remains in place until a replacement form is submitted. A replacement form will be required either when the interests in the property or income change, or the owners stop living together as a married couple/civil partners or one of the joint owners dies. Even the smallest change in interest cancels the declaration and without submission of a subsequent form the 50:50 split will automatically apply. On death or permanent separation the income is split as to the beneficial interest.

Example:
Andrew and Anne are married and jointly own a rented property. Andrew is a 45% additional rate taxpayer and Anne is a 20% basic rate taxpayer. Their accountant has calculated that it would be more beneficial for the profit to be split 80:20 to ensure that the least income tax is paid.

The legal ownership is therefore changed to being held 80:20 as ‘tenants in common’ and the declaration Form 17 signed, but unfortunately is not submitted within the 60-day time limit.
The income tax split therefore remains at 50:50 but legally the underlying ownership has changed to 80:20. The 50:50 tax split will remain until a fresh Form 17 is submitted.