Lee Sharpe looks at HMRC’s Form 17 declaration of beneficial interest in joint property and how it is used.
Many readers will be familiar with HMRC’s Form 17 (‘Declaration of beneficial interests in joint property and income’) for use by spouses and civil partners, but it is surprising how even some agents can get the details wrong, so some of the key points are set out below.
The basic assumption
The relevant legislation (ITA 2007, s 836) sets out the legal assumption that income derived from any property that is held jointly by a married couple, (or civil partnership), and where they are living together as a couple, is to be split 50:50.
This assumption differs fundamentally from the approach for assets that are not owned jointly between spouses/civil partners, which is that the split of income follows the underlying beneficial interest in co-owned property – although that assumption may be quite easily rebutted.
The actual facts of beneficial ownership between spouses and civil partners are irrelevant unless you use a Form 17 to notify HMRC differently, as set out below. This is an administrative easement; assuming ‘equality’ in the distribution of income between spouses.
There are some exclusions from this assumption – notably where the asset is held in partnership, or with the commercial letting of furnished holiday accommodation (as defined in the legislation). In such cases, the income share will broadly be as the partners/co-owners see fit, and may be changed as they determine, from time to time.
Form 17 process
The Form 17 procedure is used to formally notify HMRC that there is, in fact, a different underlying beneficial ownership in the asset in question, other than 50:50 – and that new split should be used to determine the split in income, for income tax purposes, from that point onwards.
In theory, non-spouses/civil partners could split the income from co-owned property between them however they liked: 50:50, 75:25, 1:2, etc. But the Form 17 declaration effectively permits a move only from the default 50:50, to an income split that reflects whatever is the split in beneficial ownership. If for some reason, the spouses’ respective beneficial interests in the income from the property does not correspond to their underlying beneficial interests in the property itself, then a Form 17 joint declaration cannot be made.
Both individuals must sign the joint declaration of actual underlying beneficial interest in the property/ies in question. A single joint declaration can cover several items and each may be beneficially owned in different proportions.
The declaration must then be delivered to HMRC within 60 days, together with evidence of the underlying split in beneficial interest. That would typically be a declaration of trust, but other evidence may be appropriate, depending on the circumstances.
HMRC will then accept the declared income split, from the date of the declaration.
Some Form 17 tips and tricks
1) Form 17 is the prescribed form of declaration authorised by ITA 2007, s 837. A Form 17 is irrelevant where the underlying beneficial interest is actually 50:50 – it would achieve nothing. And, in fact, it cannot be made in such circumstances since (according to s 837) the declaration may be made only if the beneficial interests are unequal.
2) You cannot, therefore, use a Form 17 to change the income split back to 50:50: there is no reversal since a Form 17 is more a revelation of the true position. Likewise, the declaration cannot be revoked.
3) Form 17 does not apply only to land or to bricks and mortar property. It could conceivably apply to practically any form of ‘property’ held jointly (that hasn’t been specifically excluded), for example, shares or securities typically listed on a stock exchange (however, shares in ‘small’ companies, specifically ‘close’ companies, are excluded from the 50:50 basic assumption referred to above, so would not be candidates for Form 17).
4) However, HMRC apparently objects to Forms 17 for bank accounts in joint names, on the basis that the income therefrom should be split 50:50 anyway. But, this would be to ignore scenarios where one individual has provided all the funds and the other individual’s name has been added (say) for administrative convenience, while the funds still ‘belong’ outright to the original owner. I think a Form 17 would be appropriate in such circumstances – but only where a split other than 50:50 and on to the actual underlying beneficial interest was desirable.
5) The only documentation that has to be less than 60 days old is the joint declaration itself; the evidence of an unequal split, such as any declaration of trust, may be years old. There is nothing wrong with this. Spouses and civil partners are not obliged to notify of an uneven split in their property at (or by) any time in this context; it is an option they can exercise at their discretion. Once exercised, however, it is permanent (until it is not – see next).
6) The only thing that can undo the joint declaration on Form 17 (aside, perhaps, from death/separation/divorce, or turning the property into a partnership or similarly ‘excluded’ asset, etc.) is to actually change the underlying beneficial interest. This effectively voids the Form 17, since it no longer states the correct position.
Assuming that the asset is still held jointly by the spouses/civil partners after that fresh change in beneficial interests, the default approach of ITA 2007, s 836 (i.e. an assumed 50:50 income split) – will apply once more, unless it is in turn overridden by a fresh Form 17 joint declaration of the new underlying beneficial interest and corresponding split for income tax purposes.
Of course, changing the beneficial interest between individuals would normally trigger a capital gains tax (CGT) charge, but this is usually CGT-neutral for married couples and civil partnerships (although (for example) stamp duty land tax may still be a concern, where the property is land/buildings in London and is subject to a mortgage).
The Form 17 declaration is a relatively simple device to exploit a choice deliberately available to spouses and civil partners. There will be many situations where it would be beneficial to retain the assumed 50:50 income split, particularly where it is the spouse in the higher income tax band who actually has the greater beneficial interest in the property in question. But this will not always be the case, and there is nothing to prevent several Forms 17 being submitted with different beneficial interests over the whole period of a couple’s joint ownership of an asset.
This article was first printed in Property Tax Insider in November 2017.