Mark McLaughlin points out that identifying who is taxable on property rental income is not necessarily a straightforward task.
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It is common for assets such as an investment property to be jointly owned by spouses (or civil partners). As a general rule, both spouses are treated for income tax purposes as beneficially entitled to the rental income in equal shares (commonly known as the ‘50:50’ rule).
The 50:50 rule generally applies while the couple are living together (although see below for exceptions to the 50:50 rule). For these purposes, a married couple are treated as ‘living together’ broadly unless the spouses are separated under a court order or by deed of separation, or they are in fact separated in circumstances in which the separation is likely to be permanent.
Your tax or mine?
If the 50:50 rule has been disapplied because the couple are no longer living together, income tax is chargeable on the person receiving or entitled to the profits (ITTOIA 2005, s 271). However, establishing who is ‘the person receiving or entitled to the profits’ is not always straightforward.
HM Revenue and Customs (HMRC) guidance (in its Property Income Manual at PIM1030) states: ‘In cases where the person receiving the income seems to differ from the person entitled to it, or the share of income received differs from formal joint ownership shares, it is important to establish the reality of the situation.’
All or nothing
In Moss v Revenue and Customs [2025] UKFTT 595 (TC), the taxpayer (W) purchased a property with her then husband (H) in October 2013, with the benefit of a mortgage. In February 2015, H went abroad to Bangkok on business. Before he left, he executed a power of attorney in W’s favour. The marriage subsequently ran into difficulties, and in November 2016, communications ceased completely. To make ends meet, W took part-time jobs. In addition, between (approximately) February 2017 and March 2020, the property was let out on Airbnb. However, the rental income was not reported on W’s tax returns. HMRC issued discovery assessments. W appealed.
The First-tier Tribunal (FTT) noted that the property was jointly owned by W and H. However, the general rule of apportionment (i.e., the 50:50 rule) did not apply. It was clear that the couple were physically separated in circumstances where the separation was likely to be permanent from November 2016. In addition, simply because H benefited from the use to which the income was put (i.e., it paid off debts for which he was jointly liable), that did not mean he was beneficially entitled to a half share of that income. It was simply that the income was applied by W to pay debts for which H was jointly responsible. To be taxable on him, H would have had to have been in receipt of, or entitled to, the income (which he was not). W’s appeal was dismissed.
Practical tip
Aside from the 50:50 rule requirement that the couple are living together, there are various exceptions to the general rule (see ITA 2007, s 836; see HMRC’s Trusts, Settlements and Estates Manual at TSEM9814). For example, if the couple have unequal beneficial interests in the investment property as tenants-in-common (e.g., husband 30% and wife 70%) and they make a valid declaration to HMRC (on a form 17), the 50:50 rule is generally disapplied and they are taxable on the rental profits on a 30:70 basis instead.
