HMRC Form 17: Rental Income Tax Declaration for Married Couples
30/03/2021
9 min read
What is Form 17 in income tax?
Tax form 17 affects capital gains tax and income tax based on rental income from a property owned by a Married person or couple.
By default HMRC will tax each party based on a 50% beneficial interest, unless you submit a valid Form 17 declaration along with a deed such as a Deed of Assignment or a Deed of Trust.
The Income Tax Act 2007 Section 836 states:
Jointly held Property
- 1
- who are married to, or are civil partners of, each other, and
- who live together.
This section applies if income arises from property held in the names of individuals—
- 2
The individuals are treated for income tax purposes as beneficially entitled to the income in equal shares.
Married couples and Civil Partners must submit an HMRC Form 17 to HMRC if they wish to be taxed according to an unequal beneficial interest split.
Rental Income can be shared in unequal shares between a married couple which means when the rent is received one of the parties can declare a higher share than the other so as to utilise a lower tax bracket.
The beneficial interest split can be anything that you both agree; such as 50:50, 99:1 or even 100:0.
Income tax is payable on the rent as per the beneficial interest. If Party 1 is listed as sole legal owner, but Party 1 and Party 2 split the beneficial interest, either by 50% or by un unequal amount, tax is payable on the beneficial interest belonging to each party.
If Party 1 and Party 2 each have an equal 50% of the beneficial interest, 50% of any rental income on the property will count toward each of their incomes for income tax purposes, regardless of whether party two has any legal ownership. For more information, speak to a tax advisor.
For example:
Mr and Mrs Smith are married and live together. Mr Smith is in a higher tax bracket (paying 40% income tax) and owns 25% of an investment property. Mrs Smith pays income tax at basic rate (of 20%) and owns 75%. The rental income on the property is 10,000. They each pay tax on 50% of that income, being £5,000 each.
Total income tax paid on £10,000 = £2,000 + £1,000 = £3,000
With a valid Form 17 reflecting their 25/75 beneficial interest split, Mr Smith would pay 40% income tax on 25% of the total rental income, being £2,500. Mrs Smith would pay tax at 20% on 75% of the rental income, being £7,500.
Total income tax paid on £10,000 = £1,000 + £1,500 = £2,500
If Mr Smith declared no beneficial interest (0%), then Mrs. Smith would pay 20% tax on the full £10,000. This would make the total income tax on the rental income just £2,000
Before you undertake any transfer you should speak to a tax specialist to understand the tax implications for the transfer. You are responsible for declaring your own tax and paying any liability due. Tax bands change, so speak to your tax advisor to confirm the tax rate you are liable to pay.
You can't share capital gains in different shares to the rental income
You may want to share rental income in one share and then any profit for CGT in another way, however HMRC states, "A couple cannot make a declaration where the split of beneficial ownership of the asset and of the income from it differ. Nor do they have to make a declaration even if they are entitled to. So you should not take the absence of a declaration as being in itself evidence that the beneficial ownership is split evenly".
You can, however, draft a new deed of trust and file a new form as many times as you like and as such can do so just prior to completion of the sale of the property.
HMRC form 17 can be used to declare a beneficial interest if you hold property jointly and:
- you actually own the property in unequal shares;
- you're entitled to the income arising in proportion to those shares;
- you want to be taxed on that basis.
How do I change the beneficial ownership of a property?
In order to make a Form 17 declaration there are a few things you will need to put in place first. Below is the step-by-step process to declare unequal shares in your property for HMRC form 17.
- 1
Severance of Joint Tenancy
Most married couples or civil partners own property as joint tenants. If this is the 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)
We can sever a joint tenancy for a fixed fee of £260 INC VAT. This includes disbursements.
- 2A
Declaration of Trust: Form 17
Once you are registered as tenants in common you can execute a deed of trust which legally defines the fixed beneficial interest you each hold and what proportion of the outgoing you are each responsible for.
We can provide a deed of trust. This service is available at a Fixed Fee of £299 INC VAT. Terms apply.
You can at a future date change the beneficial interest using a deed of variation, or deed of surrender and then a new deed of trust filing an updated Form 17.
- 2B
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.
However, each time your beneficial interest split changes by 0.4% or more, you will need to submit a new HMRC Form 17, or HMRC will begin taxing you as if you had 50% beneficial ownership each.
We offer a floating deed of trust for a Fixed Fee of £399 INC VAT. Terms apply.
You can at a future date change the beneficial interest using a deed of variation, or deed of surrender and then a new deed of trust filing an updated Form 17.
- 2C
Deed of Assignment
If you want to assign some or all of 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.
We can provide a deed of assignment. This service is available at a Fixed Fee of £350 INC VAT. Terms apply.
You can at a future date change the beneficial interest using a deed of variation, or deed of surrender and then a new deed of trust. You must file an updated Form 17 each time your beneficial shares change.
- 3
HMRC Form 17 Declaration
Once you have a Deed or Declaration which legally defines your beneficial interest shares in The Property, you can submit your HMRC Form 17 Declaration.
The completed form must be sent with any evidence of the beneficial interest you have declared within 60 days of the date the declaration was made to:
Pay As You Earn and Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
Frequently Asked Questions
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