Financial focus on jointly held assets

Where a married couple (or those under a civil partnership) jointly own assets, income arising from those assets is deemed (by default) by HMRC to be taxable on a 50:50 basis no matter what the underlying ownership.  The reason for this is simply an old anti-avoidance rule to prevent, primarily, rental income being claimed to be received by the individual with the lower tax rate.

It is, however, often quite possible to elect to have income arising from jointly held assets taxed in accordance with the underlying beneficial ownership by means of a simple election on “Form 17”.  This would enable the income arising to be taxed in unequal shares.

There are, of course, various conditions – the main ones being that the asset(s) in question must be held as “tenants-in-common” and not as “joint tenants” and you will be required to provide evidence of the actual ownership (eg: by deed, or written declaration).  Both spouses must elect for the actual basis to apply, and the form must be received by HMRC within 60 days of the date of the declaration (this deadline is strictly adhered to by HMRC).

The election will only apply from the declaration date and therefore cannot be backdated.

You should note that once the election is in place, the election will continue to be in force for future tax years until one spouse dies, the couple permanently separate or the beneficial interest in the property changes.  You cannot therefore de-elect (although you can trigger the end of the election by changing the underlying ownership of the property).  There can also be other implications in making an election such as Stamp Duty Land Tax, obtaining permission from your mortgage lender, etc.

With the start of the new tax year, however, is it time to review this potential election to see if you as a couple can change the beneficial ownership of any income and, by making a form 17 election, (re)arrange affairs to reduce your future tax exposure as a couple before the 2023/24 rental income starts to be received?

For further information please contact robin.beadle@ensors.co.uk