Deed of Trust & Form 17: Property Income Tax Planning
Joint property owners:
Properties owned by more than one person, notably married couples and civil partners, may wish to apportion any related income to one particular person for efficient tax planning. For example a married couple, where one spouse earns £80,000 per year, and the second spouse only £15,000 per year. It may be advantageous to allocate property income to the lower income spouse to incur 20% basic rate income tax instead of 40% higher rate income tax.
The problem for property income allocation between owners:
Typically, when purchasing a house together, you would enter the ownership in equal terms, such as Joint Tenants or 50-50 Tenants in Common etc. However, this ownership must be adhered to in the apportionment of any related property income. As you can see, from the example above, such an ownershp structure would mean part of the property income would be allocated to a higher income spouse and tax be subject to 40% higher rate.
The potential solution:
Legally change the ownership structure to ensure Tenants in Common with the correct ownership apportionment between the owners (such as 99% to one spouse and 1% to the other spouse)
Create a Deed of Trust that is signed reflecting the intended beneficial ownership.
Submit Form 17 to HMRC within 60 days of signing the Deed of Trust to formally declare the new ownership split for taxation purposes.
Once HMRC accept Form 17, the income can be apportioned according to the new ownership structure and included on the relevant spouse’s self-assessment tax return.
What is Form 17?
From 17 is for married couples or civil partners who live together and own 1 or more income generating properties together.
The technical rules to comply with:
You must be a legally married couple or civil partner (i.e. legal certificate provided)
You must be living together. If you’re still legally married, but ‘separated’ then this doesn’t count.
Clearly, both names must be on the legal title of the property.
The property must be owned as Tenants in Common. A Joint Tenancy ownership structure must be severed and a Tenants in Common introduced instead.
There must be income from the property to report to HMRC, otherwise making the process redundant.
There can’t be any other co-owners, even if family, such as siblings or children etc.
Form 17 must be completed per property, not per couple.
The same formal changes must be completed again if the income apportionment is to be altered to a more suitable split should any situation change.
The rules of Form 17 must be complied with at the time of application, and throughout the period of ownership with property income being received. If you separate later down the line, the eligibility of the Form 17 is revoked by default, despite what understanding HMRC may have had in the past, and HMRC would need to be updated with the change in situation.
We can Help
As a firm of Chartered Accountants, we cover such core tax planning arrangements for jointly owned property between spouses. Please get in touch for further information.
Joint property owners:
Properties owned by more than one person, notably married couples and civil partners, may wish to apportion any related income to one particular person for efficient tax planning. For example a married couple, where one spouse earns £80,000 per year, and the second spouse only £15,000 per year. It may be advantageous to allocate property income to the lower income spouse to incur 20% basic rate income tax instead of 40% higher rate income tax.
The problem for property income allocation between owners:
Typically, when purchasing a house together, you would enter the ownership in equal terms, such as Joint Tenants or 50-50 Tenants in Common etc. However, this ownership must be adhered to in the apportionment of any related property income. As you can see, from the example above, such an ownershp structure would mean part of the property income would be allocated to a higher income spouse and tax be subject to 40% higher rate.
The potential solution:
What is Form 17?
From 17 is for married couples or civil partners who live together and own 1 or more income generating properties together.
The technical rules to comply with:
We can Help
As a firm of Chartered Accountants, we cover such core tax planning arrangements for jointly owned property between spouses. Please get in touch for further information.