HMRC Form 17: Rental Income Tax Declaration for Married Couples

-
30/03/2021
9,197
13 min read
HMRC Form 17 from Parachute Law

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
    This section applies if income arises from property held in the names of individuals—
    • who are married to, or are civil partners of, each other, and
    • who live together.
    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
    Declaration of No Interest
If you want to put 100% of the beneficial interest into one party's name, Party 2 will need to execute a declaration of no interest in the property.

We can provide a declaration of no interest. This service is available at a Fixed Fee of £240 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.

    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

This article is intended as a guide and is not a substitute for proper financial advice.

Parachute Law Ltd does not provide stamp duty, bankruptcy, financial, tax (including capital gains tax, inheritance tax or rental income tax) advice and does not advise you as to the suitability of these documents for your particular circumstances.

We can introduce you to a professional accountant if you would like tax and financial advice specific to your situation and assets.


Frequently Asked Questions
It means an interest in the economic benefit of property - the benefit is the right to live in the property and right of income from it such as rent or capital gain. Equitable interest has the same meaning as beneficial interest, beneficial ownership.
No, the HMRC Form 17 Declaration will have effect only from the date you signed it, and will remain in force until the date your interests in the property or income change, or you stop living together as a married couple or civil partners.
Partners who are not married or in a civil partnership do not have to fill in HMRC Form 17. You will be taxed according to your beneficial interest. If one of you owns the property, but wants to give the other person rights to live in the property and/or rights to capital gains or rental income, you can execute a Deed of Assignment.

If you own your home and do not want your cohabiting partner to gain rights over your property through their contributions to the household (mortgage contributions, works and maintenance etc.) you should have them sign a Declaration of No Interest. This indicates that they may make contributions toward the property but they still have no legal rights over it, living there at your discretion only.

If you both own shares in the property and want to define your rights, responsibilities, and what will happen if you separate or sell The Property, you can execute a Deed of Trust. A deed of trust sets out each of your rights and responsibilities regarding the property. You could opt for a Floating Deed of Trust whereby your share of the beneficial interest changes in proportion to the contributions you make.
Another way to share ownership is to form a General Partnership. This is a business entity so you must give the business a name and register it with HMRC. This would involve putting the property in one person’s name, who holds the property as trustee for the partnership. This is more common for couples with multiple buy-to-let properties.

This would require a partnership agreement wherein you can determine your beneficial interest split. A general partnership agreement is sufficient evidence to be taxed as per your beneficial interest.

Partnerships must fill out HMRC Self Assessment Form sa800

Contact us if you would like more information about this service.
If by drafting the deed of trust and filing a declaration the transaction provides your spouse or civil partner an interest or a greater interest in land (for example your wife owns 50% and then is given the other 50% of the beneficial interest), stamp duty land tax (SDLT) or land transaction tax (LTT) will be payable based on any chargeable consideration given for the interest.
You pay any capital gains tax on any profit from property that isn't your Principle Place of Residence in the shares stated in your deed of trust and notified to HMRC via Form 17.
Yes you can, however the Form 17 process is only for married couples who are joint legal owners of a property. If you are the sole legal owner of a property and want to share rental income with your wife, but not add her to the legal title then this is the process:

  1. Draft a deed of trust - as you are the sole legal owner you also own 100% of the beneficial interest (unless stated otherwise in another deed).
  2. Do not file a Form 17 - (not required)
  3. Share the rental income or CGT - in the shares stated within the deed of trust and declare the same in your self assessment tax return at the end of the tax year,
Form 17 is a declaration for tax purposes only to the HMRC; it doesn't cover all the legal aspects such as how to sell the property if either party wants to or who is liable for the mortgage repayments. A Deed of Trust is a legal document that protects the interest of joint owners who own a property as tenants in common.
If you own the property as joint tenants then you have agreed that you own the property jointly 100%. This means that if either one of you were to die, then the other would still be the 100% owner of the property. This means that any income from a joint property held as joint tenants is owned 100% between you so you split it equally. Click to read about severance of joint tenancy.

(3)The declaration has effect only if notice of it is given to an officer of Revenue and Customs—

  1. in such form and manner as the Commissioners for Her Majesty's Revenue and Customs may prescribe, and
  2. within the period of 60 days beginning with the date of the declaration.

This means you have 60 days from the date of executing your deed of trust to inform HMRC about your beneficial shares with your wife/husband/civil partner.
Income Tax Act 2007 - Section 837 - Jointly held property: declarations of unequal beneficial interests states: (4)The declaration has effect in relation to income arising on or after the date of the declaration. As rental income is taxed on the date the rent is received then if it is your intention to share the income in a tax efficient way you should look to execute a deed of trust before the rent is received and file your Form 17 within 60 days.

For example: John and Mary jointly own a buy to let as joint tenants. The next rental payment is on the 31st March. On the 1st march they sever the joint tenancy, execute a deed of trust and file their declaration to reflect a new beneficial interest of 100% to Mary and 0% to John. When the next rental payment is received Mary will declare the income in her tax return for the year as 100% to her.

(5)The declaration continues to have effect until such time (if any) as there is a change in the beneficial interests of the individuals in either—

  1. the income to which the declaration relates, or
  2. the property from which that income arises.

If the beneficial interest for the property doesn't change then the declaration will remain enforce in the shares declared.

Yes you can. You simply need to update your deed of trust and file a new declaration. The process is formally called Revoking Deed of Trust. Your solicitor will review your existing deed to ensure that it can be revoked and that the parties agree to the same. The solicitor drafts a new deed of trust with the new income split and then you file your form once executed. You can complete this process as often as you like however it is advisable to keep records of all property income received along with how it was shared and the evidence that HMRC were informed.
No. The income share must be split in the same percentages as those in the deed of trust and in the declaration. This form is used by HMRC to confirm where married or civil couples own a joint property together in unequal shares.

You cannot benefit from income form a jointly owned property in a different share to your beneficial interest.
 
Find Out More:

Talk to a Professional

If you'd like to share your beneficial interest using HMRC Form 17, we can help.

 
Agree to Terms | Privacy Policy
We will reply to your message within 1 working day and will help wherever we can. If we can't help, we'll sometimes refer your query to someone who we think can. Check our Privacy Terms for how that works.