Jointly Owned Property: Time to Review Your Rental Income Split

If you, and your spouse or civil partner, jointly own a rental property, now is a good time to review how the income is being split for tax purposes.

A recent tax tribunal case and changes to the rules on Furnished Holiday Lets (FHLs) mean that many landlords may need to take action to ensure their affairs are up to date and remain tax efficient.

The Default 50:50 Income Split

Under UK tax law, when spouses or civil partners live together and own rental properties, HMRC automatically treats the income as being split 50:50, regardless of how the property is legally owned.

The “living together” condition is key to applying the default rule. If couples are separated, different tax treatment may apply, even if the legal ownership hasn’t changed.

Change in Rules for Former FHL Properties

Until 5 April 2025, properties qualifying as Furnished Holiday Lets (FHLs) were excluded from the default 50:50 rule, allowing owners to split income in any proportion.

However, from 6 April 2025, that exception has been removed. The 50:50 rule now applies to FHLs in the same way as other rental properties.

What if we want to split the income differently?

If the couple wishes to split the income differently from any jointly owned property, say 60:40 or 90:10, they must meet two requirements:

1. The beneficial ownership of the property must match the desired income split. This usually involves preparing a declaration of trust.

2. The couple must submit a Form 17 to HMRC within 60 days of changing the beneficial ownership.

Without a Form 17 submitted within the 60-day window, the income will continue to be taxed on a 50:50 basis, which for properties previously classed as FHL, could result in unexpected tax liabilities.

Capital Gains Tax Considerations

It's important to note that Form 17 only affects how income from the property is taxed. For capital gains tax purposes, any gain is apportioned based on the beneficial ownership at the time the property is sold.

If a couple wants to declare the income 60:40 and does so by changing the beneficial ownership via a declaration of trust and successfully submitting a Form 17 but then wants to revert to 50:50 ownership before sale, a second declaration of trust will be needed.

What You Should Do?

It is important to act now. For those that:

• Jointly own a rental property and want to split income in proportions other than 50:50, or

• Previously owned an FHL and split the income unequally without a declaration

You will need to review the beneficial ownership, consider whether a new declaration of trust is needed, and ensure Form 17 is submitted within 60 days of any change.

We are happy to advise on the steps required to make your property ownership structure tax-efficient and compliant.

Please get in touch if you would like us to review your situation.

Written by: Ffion Bainbridge