Spouses or civil partners who receive rental income should consider the way in which the rental income is split in accordance with their prospective tax rates. For example if, before rental income, Mrs Jones is a higher rate tax payer and Mr Jones is a basic rate taxpayer, it may be more tax efficient for any rental income received from jointly owned property to be assessed on Mr Jones.
If the legal title of the rental property is in the name of both spouses then HMRC will normally treat the rental income received from this property as arising 50/50 to each spouse. However solicitors can draw up a declaration of trust to register a different beneficial interest and the percentage can be decided in order to achieve the most tax efficient split.
For HMRC to recognise a differing beneficial interest where the property is in joint names a certified copy of the declaration must be submitted to them along with HMRC’s form 17. This must be done within a specified number of days of the declaration otherwise HMRC will continue to regard the rental income as arising 50/50.
A declaration of trust can also be used where a property is in the sole name of one of a couple so that the rental income can instead be assessed on both spouses.
There are other considerations should spouses or civil partners wish to register a declaration of trust; for example, whether a mortgage is in place, the details of their Wills and the implications should the couple separate or divorce. Both legal and taxation advice should be sought if you are considering a declaration of trust.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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