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Guidance on how and when to use form 17 with regards to jointly owned property.

Owning a property in joint names can be used as a tax planning tool as each joint owner can use the annual capital gains tax allowance when the property is sold. Purchasing a property in joint names usually takes the form of either ‘joint tenant’ or ‘tenants in common’.

Joint tenants

As joint tenants (sometimes called ‘beneficial joint tenants’) all owners have equal rights to the whole property and on death the property automatically goes to the surviving tenant. The joint tenants can’t pass on their ownership of the property in their will and cannot sell or re-mortgage the property without the other owner’s agreement.

Tenants in common

As tenants in common the joint owners register the existence of separate shares of ownership and on death the property does not automatically transfer into the ownership of the surviving tenants. The tenant in a ‘tenancy in common’ can sell or re-mortgage the property without the other owner’s agreement.

Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But the owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.

Income Tax Act 2007 s 836 provides that husbands and wives or civil partners living together are generally treated as entitled in equal shares to income from jointly held property. However, this rule will not apply in any of the following instances:

  • the income is from furnished holiday lettings
  • there is actually a partnership in which case the income is divided according to the terms of the partnership agreement
  • both husband and wife, or both civil partners, have signed a declaration stating their beneficial interests in both the property and the income arising from it.

A declaration is only valid if their interests in the income and in the property itself correspond. The declaration is made via Form 17. If one spouse/civil partner does not want to make the declaration, the income would be taxed on a 50:50 split even if one spouse /civil partner holds say 80% of capital and income and the other holds 20%.

A form 17 declaration can only be made by spouses/civil partners and not by any other individuals; married couples who are separated cannot make a form 17 declaration, the income attributable to them is based on the basis of their entitlement.

A form 17 declaration can only be made if the individuals are beneficially entitled to the income in unequal shares. Once a form 17 is in place the income will be split based on the declaration made until:

  • the couple separate or divorce
  • the beneficial interest of the spouse/civil partner changes (if one party transfers any beneficial interest to the other party or to a third party).

If there is even a minor change in the beneficial interest the declaration on form 17 stops and the standard 50:50 rules applies again unless the couple make a fresh declaration.

A declaration cannot be made where a husband and wife or civil partners own property as beneficial joint tenants. In these circumstances the couple do not own the property in shares at all, but are entitled jointly to the whole of both the property and the income. This is distinct from the situation where the husband and wife or civil partners own property as beneficial tenants in common where they are each entitled to specific shares in the property and the income arising.

Form 17 must be filled in online and declarations need to reach HMRC within 60 days of the date it was signed. HMRC may request further evidence on the beneficial interest that the party have declared.

Article extracted from ACCA “In Practice” Newsletter