Most people will accept as sensible the starting point of HMRC in assuming that income arising from property held jointly by a husband and wife will be split equally between them.
Of course an equal split is not always the most beneficial split in terms of the allocation of profits and so HMRC will accept that spouses can transfer some of their interest in a property to each other. HMRC are concerned to ensure that this is properly documented and that they are notified as these changes occur. They ensure this happens through the filing of a prescribed form – Form 17.
The Form 17 captures the details of the taxpayer and the property and although completed online it must be printed, signed by all parties and sent to HMRC. At the same time HMRC request that the deed of transfer / deed of trust is also submitted, proving the change in beneficial ownership. Such deeds are usually drafted by a solicitor, incurring professional fees. The Form 17 should be submitted within 60 days of the deed being signed in order to be effective.
Once notified, HMRC should consider the arrangements to remain in place until they are notified to the contrary. There are no limits to the number of times a Form 17 can be submitted.
Capital Gains Tax
It is important to consider all receipts from the property in terms of the proportions set out in Form 17. Therefore it may be beneficial to change the proportions shortly before the property is sold so as to make sure that both beneficial owners utilise their annual CGT exemption if they are not utilising them elsewhere.
The beneficial interest of each spouse will also effect the value in that spouse’s estate for inheritance tax purposes. Although in many cases surviving spouse exemption or other IHT planning might have been undertaken so as to mitigate IHT, mixed domicile spouses should not overlook the IHT exposure which might arise through transfers of interests in properties.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.