Form 17 not filed

[Exeo]

Hi, looking for some tax advise in relation to form 17.
Sure I've come to the right place here so would be very grateful if someone could help us out.
My wife and I jointly let out a property, which she manages and receives the rent for, and has for some time.
We recently had a deed of trust set up by a solicitor some months ago, to have an unequal split of the rent, as she is a lower rate taxpayer, however we didn't know about the form 17.

As we are now outside of the 60 days since the deed of trust was signed, whats the best way to solve this?
Hoping we don't need to have the deed re done.. the solicitors haven't been much help other than suggesting an amendment to it can be made, would this suffice if we then submitted the form 17 to tie in with this?

[Lambs]

E,

It seems reasonable to assume that the solicitor has set up the Deed of Trust to transfer some (more) of the beneficial interest in the property to your spouse, so that she is entitled to that greater proportion of income. This is normal but you should check. In English and Welsh law, the beneficial interest may be re-apportioned without necessarily changing the legal ownership (title). The rules differ for Scotland.

And that is the point of a Form 17: where spouses or civil partners hold joint LEGAL title (and only they do - there cannot be other co-owners) AND they have unequal BENEFICIAL ownership, then they may CHOOSE to notify HMRC accordingly, using the joint election as set out in Form 17, to require that they be taxed on the rents in proportion to that particular split of beneficial ownership, from the date of the election.

(In the absence of such notice under Form 17, then the rents should be taxed 50:50, where heldl in joint names).

The Form 17 includes a requirement by HMRC to provide evidence of that unequal split in beneficial ownership, such as a Deed of Trust.

A Form 17 will be refused by HMRC if it was signed (dated) more than 60 days prior. However, that does NOT mean that the Deed of Trust is "out of date". It is perfectly acceptable for a Form 17, that was itself signed less than 60 days beforehand, to include a Deed of Trust that is (say) 10 years old. (The effect would be to say, "We have owned this property unequally for 10 years; previously we were perfectly happy to be taxed equally on the resulting rental profits, but we have now decided that we wish henceforth to be taxed in proportion to that unequal split - here is our dusty Deed of Trust as evidence".)

So, all other things being in order, you can re-do the Form 17 with a more recent date and still use the "old" Deed without any problem.

Some other points:

Broadly, the Form 17 lasts "forever" - until you divorce, one or both of you dies or, less drastically, you change the underlying beneficial ownership again, which might involve only you as a couple again, (which you can do next week, or next decade, etc.), or a third party disposal / sale, etc.
If you DO decide to change the underlying beneficial ownership once more, then the rental income split will be taxed as to 50:50 thenceforth, assuming the property remains only in your joint legal ownership, without any obligation to notify HMRC (there is no Form 17A, or Form 18 to amend a previous Form 17) although you might decide it sensisble to mention such a change on your later tax return(s). The choice would then be yours as to whether or not to lodge a FRESH Form 17, asking to be taxed in accordance with the new beneficial split.

A transfer of beneficial ownership from one person to another is a disposal for CGT purposes. In the absence of special relieving provisions, a gift of beneficial ownership from one party to another is taxed as if it were a sale (disposal) at full market value (of such proportion, etc.), and CGT would be due on such a gift accordingly, were it not for the special rules that say a disposal between spouses who are living together as a couple (as generously defined) may transfer at neither a gain nor a loss, for CGT purposes. I mention it this way around because too many people assume a gift is CGT-free while in fact most gifts should be "CGT'able" (except that so many such gifts are in fact between spouses, civil partners).

If the property were subject to a mortgge, then there is (was) a risk of SDLT charge on the movement in ownership. The receiving party, IF they take on responsibility for the mortgage, is deemed thereby to have given "valuable consideration" equivalent to the proportion of beneficial interest newly acquired. Effectively to have paid for their extra slice, insofar as SDLT is concerned. This is often overlooked.

While the foregoing should address your immediate concerns, it is not clear from your post how you split your income - or how you were DEEMED to split it for tax purposes at least - prior to the Deed of Trust. Assuming the property was already in joint names before the Deed of Trust, then it should by default have been 50:50, as previously noted.

I trust this is useful.

With regards,

Lambs