If a married couple or civil partners buy an investment property HMRC the rules are
TSEM9812 – Property held jointly by married couples or civil partners: Overview: two main rules
There are two rules about property held jointly by married couples and civil partners:
- the ‘50/50 rule’ (ITA/S836) whereby most income from jointly held property is treated as split equally between the two spouses or civil partners for income tax purposes; the 50/50 rule applies unless there is a valid declaration on form 17; sections TSEM9814-9840 contain the details;
- the ‘form 17 rule’, whereby, if the true income split is different from 50/50, the couple can opt to be taxed on that basis for income tax purposes (ITA/S837); sections TSEM9842-9878 contain the details.
When you get married there are tax changes
Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.
This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year).
Capital Gains Tax
If you and your spouse or civil partner are living together, any transfer of an asset between you is treated as giving rise to neither a gain nor a loss to the person transferring it. Any amount actually paid is ignored. If the person receiving the asset later disposes of it, they will be treated as if they had paid an amount equal to the total of your costs.
In addition to the CGT exemption for gifts between spouses, a similar relief exists for inheritance tax (“IHT”) purposes in most cases, so that assets can be gifted from one spouse to another without triggering an IHT charge.
Plus unused Nil Rate bands can be transferred on death.
What about Investment Property?
The short answer is that it does not automatically become jointly owned on marriage, but at least you can transfer part of the ownership without incurring capital gains tax.
Just focusing on income tax, HMRC assume that when you buy a property/investment property its owned 50/50 between husband and wife or civil partners living together, this set out in the Income tax Act s 836. However, this rule will not apply in any of the following instances:
- the income is from furnished holiday lettings;
- there is actually a partnership in which case the income is divided according to the terms of the partnership agreement;
- both husband and wife, or both civil partners, have signed a declaration stating their beneficial interests in both the property and the income arising from it.
When you make a declaration it must apply equally to ownership and income and a couple must be married or civil partners, you can’t be separated or divorced or joint tenants.
is used to make the declaration
You can use this form to declare a beneficial interest if you hold property jointly and:
• you actually own the property in unequal shares, and
• you are entitled to the income arising in proportion to those shares, and
• you want to be taxed on that basis.
Form 17 must be submitted with in 60 days of completion, in addition a Declaration of Trust is likely to be required.
If there is a change, even a minor change, after submitting the Form 17 it will be invalid and revert to 50/50.
If the property is held in a single name it may be possible to use a declaration of trust to confirm joint beneficial interest.
Income Tax and Capital Gains Tax will be be based on the beneficial interest in the property, so if one spouse is a higher rate tax payer and the other a lower rate tax payer changing the proportion of ownership could have a significant tax advantage.
There is no default ownership for unmarried property owners.
Property owners may also need to agree the split with their mortgage lender.
For more detailed guidance read this advice from HMRC https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9000