Ladybird Living – Your London Estate Agent
Form 17: Beneficial interests and Rental Income Tax Declaration for Married Couples
Beneficial interests in property refers to the right to share the benefits of a property, despite not being the legal owner. Specifically, it gives someone the right to: live in the property, get a share of the rental income and a share of the proceeds if the property is sold. Married couples can share the rental income in unequal shares. For example, when the rent is received, one of the parties can declare a higher share than the other to utilise a lower tax bracket. Married couples can decide what the split would be such as 50:50 or 99:1 etc.
There is a legal assumption that income derived from any property that is held jointly by a married couple, (or civil partnership), is to be split 50:50. Therefore, His Majesty’s Revenue & Customs (HMRC) will usually tax each partner based on a 50% beneficial interest unless a valid Form 17 is submitted.
What is Form 17?
Form 17 is used to formally notify HMRC that there is a different underlying beneficial ownership in the asset in question, other than 50:50 – and that new split should be used to determine the split in income for income tax purposes.
HMRC form 17 can be used to declare a beneficial interest if you hold the property jointly and:
- you own the property in unequal shares;
- you are entitled to the income arising in proportion to those shares;
- you want to be taxed on that basis.
Before making a Form 17 declaration, you must do the following:
- Sever a joint tenancy:
Most married couples or civil partners own property as joint tenants. In this case, you will need to sever your joint tenancy and register as tenants in common instead. Joint tenants can only split their beneficial interest equally (50/50).
- Declaration of Trust:
As tenants in common you can request a deed of trust which legally defines the fixed beneficial interest each partner holds and what proportion of the outgoing you are each responsible for.
- Floating deed of Trust:
A floating deed of trust contains a formula whereby the beneficial interest changes over time due to your individual contributions toward purchase price, purchase costs, repairs & renovations, and mortgage repayments.
- Deed of Assignment:
If you want to assign some or all the beneficial interest into one party’s name (usually the party in the lower income tax bracket), you will need to execute a deed of assignment.
Both individuals must sign the joint declaration. You must then send the declaration to HMRC within 60 days with evidence of the underlying split in beneficial interest. A declaration of trust would typically be required, but other evidence may be appropriate, depending on the circumstances.
T +44 (0)203 488 1488
