When it comes to owning property jointly, especially for married couples and civil partners, grasping how beneficial ownership influences tax liabilities is crucial.
While the legal owner of a property is easily identifiable, it’s the beneficial ownership that often determines who is taxed on income generated from the property.
This can become complex, particularly when ownership is shared unequally, or the property is held in trust.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Clarifying the difference between legal and beneficial ownership in joint property.
- Key tax implications for married couples and civil partners with joint property ownership.
The Basics of Legal vs. Beneficial Ownership
In the realm of property ownership, distinguishing between legal and beneficial ownership is essential.
The legal owner is the individual whose name is registered on the property title.
Conversely, the beneficial owner is entitled to the income or capital gains derived from the property.
In many cases, the same person holds both titles, but they can be separated, as seen in trusts, where a trustee holds the legal title while the beneficiary enjoys the income or gains.
Married Couples and Civil Partners: The Default Tax Treatment
For married couples and civil partners who own property jointly, the default tax treatment under Section 836 of the Income Tax Act 2007 assumes that each partner is entitled to half of the income generated from the property.
This means that, unless stated otherwise, the income is taxed equally between both parties, regardless of who actually benefits from the income.
However, this equal split doesn’t always apply. There are specific circumstances where different rules come into play:
- Non-beneficial ownership: If neither partner actually benefits from the income, the income is not taxed under the 50:50 rule.
- Unequal beneficial interests: If the partners have unequal shares in the property, they can make an election using Form 17 to have their income taxed in proportion to their actual shares. This election must be made within 60 days and cannot be backdated.
- Partnership income and Furnished Holiday Lettings: Income from these sources is also excluded from the default 50:50 treatment.
Key Points and Common Issues
For couples who wish to be taxed based on their actual beneficial ownership rather than the default 50:50 split, it’s important to formalise this with a declaration of beneficial interests using Form 17.
Failure to submit this declaration on time means reverting to the default split, potentially leading to higher tax liabilities.
Moreover, if the beneficial ownership changes, a new Form 17 must be submitted to reflect this.
Neglecting to do so could result in the income being taxed equally, even if one partner no longer has a significant beneficial interest in the property.
It’s also crucial to recognise that a Form 17 declaration does not alter the actual division of income between the partners.
It simply informs HMRC of the existing division, making it essential to keep accurate records and supporting documentation.
Summary
Understanding the complexities of joint property ownership and taxation requires careful planning and attention to detail.
Ensuring that beneficial ownership is clearly defined and that any necessary declarations are made on time can protect both partners from unexpected tax liabilities.
If you’re considering making an election or have any doubts about your property’s tax treatment, seeking expert legal advice is a valuable step to safeguard your financial interests.
At Help Me Legal, our team is here to guide you through the process, ensuring that your ownership structure is tax-efficient and legally sound.
Contact us today for personalised advice and support tailored to your specific circumstances.
Contact Help Me Legal today at 01772 282768, fill in our contact form here, or reach out via our 24 hour WhatsApp at +447816848188.