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Where Taxpayers and Advisers Meet

Evidence for form 17

xg_edin
Posts:3
Joined:Tue Jun 15, 2021 3:33 pm
Evidence for form 17

Postby xg_edin » Tue Jun 15, 2021 4:07 pm

I'm currently considering to transfer a small amount of share of our current property (under my name only, no mortgage) to my husband, so hopefully when we rent out it, it will be able to count the rental income on him for the tax efficient reason (as he is the 20% tax payer).

However, checking the form17 guidance, I noticed:

"Property held jointly by married couples or civil partners: Form 17 rule - declaration must reflect reality
Married couples and civil partners do not have a general option to have income taxed in any way they like. They can depart from the standard 50/50 split for tax purposes only where
• each spouse or civil partner is in fact entitled to a share other than 50/50 in the property and
the share that a spouse or civil partner has in the income is the same as their share in the property"

I also noticed that form 17 requests: "You'll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed".

So if I have 90% share of the property and transfer 10% share to my husband, does it mean that we will have to count 90% rental income on me? Or if we'd like to count the 90% rental income on him, do I need to transfer 90% share to him? We are in Scotland if that makes any difference regarding the property ownership.

(Tried to search here but didn't find exactly the same questions/answers from the forum, so thanks a lot in advance for anyone who can advice anything here!)

Lambs
Posts:1562
Joined:Wed Aug 06, 2008 3:15 pm

Re: Evidence for form 17

Postby Lambs » Tue Jun 15, 2021 7:20 pm

X.

The default approach (in the legislation) for apportioning income from investment property held jointly between spouses or civil partners is that it is split equally, or 50:50.

This assumption can be displaced only in certain quite narrowly defined circumstances. Assuming you are not claiming to be in partnership with your spouse, you can use the Form 17 to notify HMRC of a different underlying split of beneficial interest in the joint property.

But you are right: the split can then be ONLY according to your corresponding ACTUAL beneficial interests.

This is quite different to splitting income between co-owners of investment property who are NOT spouses /civil partners, (or in partnership - so as to avoid possible SDLT implications for Property Investment Partnerships), as they can pretty much split the income however they like.

It follows that, if you want your husband to receive 90% of the income, then you will generally have to give him a 90% interest in the property. There will be CGT and potentially SDLT* implications, although:

CGT issues will usually be avoided if you are legally married / civil partnership and living together as a couple;
SDLT* will usually be a problem (assuming you are making a gift of the interest for nil consideration) only if the property is subject to a mortgage - and even then may be circumvented in some cases.

*I assume from your last that the PROPERTY is in Scotland and, if so, you will need to check the position as regards LBTT instead of SDLT. I think the same principles apply but the 2 regimes are not exactly similar so it will be important for you to speak to a specialist in land law/tax who is familiar with the finer detail of the Land and Buildings Transaction Tax.

Regards,

Lambs

xg_edin
Posts:3
Joined:Tue Jun 15, 2021 3:33 pm

Re: Evidence for form 17

Postby xg_edin » Tue Jun 15, 2021 8:42 pm

Thanks a lot Lambs.

As you mentioned,"The default approach (in the legislation) for apportioning income from investment property held jointly between spouses or civil partners is that it is split equally, or 50:50."

So my understanding is that even if I only transfer 10% share to my husband, by default (since we are married) we can still split the rental income as 50:50 for the tax? Or do we have to go with our share of the property for the tax calculation?

Thanks,
X

bd6759
Posts:3586
Joined:Sat Feb 01, 2014 3:26 pm

Re: Evidence for form 17

Postby bd6759 » Tue Jun 15, 2021 10:03 pm

The property is in your name, therefore it isn’t “jointly held property.” Form 17 isn’t needed.

The income distribution normally follows beneficial ownership, so if you transfer a 10% share with a deed of trust, that proportion of income will follow.

Lambs
Posts:1562
Joined:Wed Aug 06, 2008 3:15 pm

Re: Evidence for form 17

Postby Lambs » Wed Jun 16, 2021 1:04 am

I fear B's contribution is a little off.

Since X is contemplating the transfer (presumably by way of gift) of some beneficial interest in the investment property to her husband, and assuming they are living together as a couple, then by default following that transfer (in any proportion) the income therefrom will be assessed on them 50:50 - this in accordance with ITA 2007 s 836. No notification would be required in order to achieve this.

See

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

- for HMRC's position on this - it's not perfect but it works OK for this issue.

This default approach will NOT apply if they ARE in partnership (as distinct from merely holding the property jointly - and you need to be careful with adopting a partnership approach as SDLT (and, by implication, Scottish LBTT) can get quite tricky with Property Investment Partnerships) or if they ARE letting the property jointly and the property qualifies as "Furnished Holiday Accommodation" - I am assuming X would have mentioned this already if it DID so qualify.

X and Mr. X may however CHOOSE to displace the default treatment and be assessed on their actual respective shares in the property by use of Form 17. Evidence of that actual ownership split would be required as a matter of course.

See

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9800

- which goes into a LOT more detail on joint assets, partnerships, etc., and the Form 17 process.

Income distribution normally follows beneficial ownership only when the co-owners are NOT spouses or civil partners. And it may readily be changed.

To summarise, X, if you transfer 10%, 15%, 60%, 90% to Mr. X then it will in most cases (except partnerships, furnished holiday accommodation, etc., as above) be taxed as to 50:50 UNLESS you choose the Form 17 route.

Please do not forget the potential pitfall re: SDLT/LBTT and gifts of interests in property subject to mortgage - there's no "spouse exemption" in that regard.

Regards,

Lambs

someone
Posts:521
Joined:Mon Feb 13, 2017 10:09 am

Re: Evidence for form 17

Postby someone » Wed Jun 16, 2021 9:49 am

Is one of the confusions here what "jointly owned property" actually means?

Whether it's legal title or beneficial interest.

I think some people say the 50/50 default treatment only applies if the *legal* title is jointly owned.

i tried to get an answer from the HMRC helpline on this but got the less than useful answer "We don't care what proportion you share the income provided all of the income is declared" which I'm pretty sure isn't right!

xg_edin
Posts:3
Joined:Tue Jun 15, 2021 3:33 pm

Re: Evidence for form 17

Postby xg_edin » Wed Jun 16, 2021 10:32 am

Thanks a lot Lambs and all! Very helpful answers and advice indeed!

Thanks,
X

maths
Posts:8281
Joined:Wed Aug 06, 2008 3:25 pm

Re: Evidence for form 17

Postby maths » Wed Jun 16, 2021 5:34 pm

ITA 2007 s836 under which income of jointly held property is automatically split 50/50 is only of relevance where the legal title is held jointly by husband and wife. If wife only holds the legal title then even if wife transfers a beneficial interest to husband (whether 5%, 10% or whatever) but retains the legal title in her own name then, as above, the 50/50 rule does not apply.

If wife transfers legal title into her name and husband's name (ie spouses hold legal title jointly) and wife then executes a declaration of trust under which she owns, say, 90% and husband owns 10% then in the absence of Form 17 each spouse is subject to income tax on 50% of the aggregate rental income.

bd6759
Posts:3586
Joined:Sat Feb 01, 2014 3:26 pm

Re: Evidence for form 17

Postby bd6759 » Thu Jun 17, 2021 11:53 pm

I fear B's contribution is a little off.
Naturally I disagree.

S836
(1)This section applies if income arises from property held in the names of individuals—
(a)who are married to, or are civil partners of, each other, and
(b)who live together.


If it’s only on one name, the section does not apply.

See also
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9810


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