As a general rule, the fall-back position for couples who live together with their spouse or civil partners is that property income – where the property is owned in joint names – is divided 50:50. This is regardless of the actual ownership structure. However, where there is unequal ownership and the couple want the income taxed on that basis a notification must be sent to HMRC together with proof that the beneficial interests in the property are unequal. This is done using Form 17 published by HMRC.
A Form 17 declaration can only be made by spouses or civil partners that are living together and own property in unequal shares with income being allocated in proportion to those shares. Couples that are separated or in some other type of union cannot make a Form 17 declaration. The declaration is only valid if both partners agree. If one spouse / partner does not agree then the income will continue to be treated on a 50:50 basis even if the ownership structure is different.
A Form 17 declaration stays in place until there is either a change in the status of the couple i.e. separation or divorce or a change in the ownership structure. If either of these occur the 50:50 income split will reapply.
There are a number of scenarios where a form 17 cannot be used, such as where a husband and wife or civil partners own property as beneficial joint tenants, for commercial letting of furnished holiday accommodation and for partnership income.
Where property is held in an unequal split, making a form 17 declaration can have a tax advantage where, for example, the majority owner of the property pays tax at a lower marginal rate than their partner.