Splitting property income between spouses or civil partners

A common question I am asked by people is….

‘Can we treat all property income on our jointly owned property as my wife’s because she does not have any other income?’

Unfortunately, where you hold property jointly with your spouse (or civil partner), HMRC automatically treats you as are sharing the income 50:50. This is the case even if you don’t actually own the property in equal shares. The exception to the rule is if the property is a furnished holiday let.

However, if you don’t beneficially own the property in equal proportions, you can jointly elect to be taxed on your actual shares. To do this you must both complete an online declaration form and send it to HMRC. The declaration takes effect from the date it is made, providing you send a certified copy of it to HMRC within the 60-day deadline.

Unfortunately, it’s not enough to just make the declaration, you have to give HMRC proof of anything other than a 50:50 split. The proof that HMRC will normally want to see is a valid declaration of trust.

A declaration of trust is a simple deed that sits behind the legal title, providing evidence of the way in which the actual rental income is split between the two of you. You will also have to own the property as tenants in common if you want unequal interests in the property.

If you need to change the split of the rental income at a later date, you can amend the declaration of trust so that the beneficial interests are again held equally or in different shares. Provided you are married, or in a civil partnership, a change to the beneficial interests in property will be treated as an exempt transfer for inheritance tax purposes and at a no gain/no loss for capital gains tax (CGT), so there won’t be any CGT to pay.

So in summary, if you would like your spouse or civil partner to be taxed on the whole of the property income because they are a lower taxpayer, you would need to transfer the whole property to them.

If you would like to discuss splitting your property income with your spouse or civil partner, please do get in touch. Simply call 0116 216 7681 or email hello@finchtax.com.