Q&As

A married couple wish to make a declaration of trust in order to change the beneficial ownership of a property presently held equally. They will divide this 99:1 to the wife and the income split will then follow the shares. This is to minimise income tax, as the wife is a lower rate tax payer. HMRC guidance states that this should be done on form 17 but this must reflect the true position. To comply with this guidance is it sufficient that the wife should receive 99% of the rent or are there other conditions or further evidence required to be able to prove the true position, eg how the parties contributed to the purchase price etc? Presumably the joint tenancy would need to to be severed at HM Land Registry by means of a restriction.

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Published on LexisPSL on 05/04/2016

The following Private Client Q&A provides comprehensive and up to date legal information covering:

  • A married couple wish to make a declaration of trust in order to change the beneficial ownership of a property presently held equally. They will divide this 99:1 to the wife and the income split will then follow the shares. This is to minimise income tax, as the wife is a lower rate tax payer. HMRC guidance states that this should be done on form 17 but this must reflect the true position. To comply with this guidance is it sufficient that the wife should receive 99% of the rent or are there other conditions or further evidence required to be able to prove the true position, eg how the parties contributed to the purchase price etc? Presumably the joint tenancy would need to to be severed at HM Land Registry by means of a restriction.

For spouses/civil partners there is a presumption for tax purposes that they are beneficially entitled to income arising from jointly owned property in equal shares Income Tax Act 2007, s 836. In practice, this means that the income and expenses are simply split equally between the two parties regardless of their actual beneficial entitlement and each party reports their share of the income on their tax return.

The following types of income are excluded from this rule under ITA 2007, s 836(3):

  1. income to which neither of the individuals is beneficially entitled

  2. partnership income

  3. income from a property business to the extent that it includes the commercial letting of furnished holiday accommodation

  4. income from shares in a close company

  5. income that is treated as the income of a specific person pursuant to some other rule

For

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