Many individuals do not realise that HMRC automatically treats income from jointly owned property that has been let out as being split equally between spouses, unless an election has been made to change this.
In this blog, the Clayton & Brewill team discusses the tax rules behind jointly ownedproperty and why seeking professional advice is always advised.
What are the tax rules for jointly owned property?
There are special rules in place for the letting out of property jointly owned by spouses or civil partners. These rules apply a default equal split of rental income, no matter the actual beneficial ownership of the property.
This doesn’t always produce the best outcome for tax purposes; if the actual beneficial interests in the property are different, then an election can be made to change the split. This is done using HMRC Form 17 and requires evidence of the actual division of the beneficial interests in the property, such as a declaration or deed.
Recent tax case
In a recent case, a taxpayer – who we’ll refer to as Mr Bevan – appealed the penalties he had received for not having notified HMRC of a tax liability in relation to property letting income. The property in question was jointly owned by Mr Bevan and his wife and all rental income was paid into his bank account. When asked by HMRC for details of his property income, Mr Bevan claimed he did not have any. He considered all rental income to belong to his wife, as she had no additional income, and felt like it was a good use of her Personal Allowance. His primary income was taxed under PAYE.
However, Mr and Mrs Bevan had not taken any professional advice on this situation and were unaware that HMRC splits income from jointly owned property equally between spouses. Despite Mr Bevan’s genuine mistake, the Tribunal found that his confusion was not a reasonable excuse and that he had ‘failed to seek the appropriate advice and proceeded on the basis of misguided assumption’, resulting in him having to pay his outstanding tax liability.
Seeking professional advice
We understand that the various tax rules put in place by HMRC can often be confusing. That’s why we would always recommend you seek professional advice if you are ever unsure of anything regarding your finances. Please do not hesitate to get in touch with the friendly team at Clayton & Brewill if you have any questions regarding tax and jointly owned property.
