Don’t be taxed on income not received!

It is relatively common for assets such as investment properties to be jointly held in the names of a married couple (or civil partners). The general rule is that the couple is treated for income tax purposes as beneficially entitled to the property income in equal shares. This is often referred to as the ‘50:50’ rule (ITA 2007, s 836).

Example 1: Unequal ownership shares

Tom and Sarah are married and living together. Tom is a 20% income taxpayer; Sarah pays tax at 40%. They jointly own an investment property (i.e., Tom 80%, Sarah 20%). The annual rental income is £10,000, which is taxable £5,000 each for Tom and Sarah. Their total tax liability for 2026/27 is £3,000 (i.e., Tom £1,000, Sarah £2,000).

Form 17 declaration

However, the 50:50 rule is subject to certain exceptions. An important exception is if the individuals make a declaration to HM Revenue and Customs (HMRC) of their unequal beneficial interests (under ITA 2007, s 837), by submitting a valid Form 17. Form 17 broadly allows married couples with unequal beneficial interests to be taxed on their actual entitlement to income from jointly held property.

Example 2: Splitting income differently

If Tom and Sarah (see Example 1) had made a valid declaration on Form 17, their rental income would be divided: Tom £8,000, Sarah £2,000. Their total tax liability for 2026/27 would have been £2,400 (i.e., Tom £1,600, Sarah £800).

Unfair outcome

In some cases, the failure to make a Form 17 declaration can result in an apparently unfair outcome. For example, in Odina v Revenue and Customs [2026] UKFTT 158 (TC), HMRC discovered that the taxpayer had not notified chargeability to the high-income child benefit charge (HICBC) for the tax years 2019/20, 2020/21 and 2021/22. HMRC therefore issued discovery assessments. The taxpayer appealed. She did not dispute that three properties were co-owned with her former husband but stated that he received all the income from the properties, and she received none. The taxpayer had been a party to divorce proceedings in the Family Court (FC). The FC stated that there were three properties in joint names of the taxpayer and her former husband, but the taxpayer did not receive the rental income attributed to her. The First-tier Tribunal (FTT) stated that as the taxpayer jointly owned three properties with her former husband, the taxpayer was beneficially entitled to receive an equal share of the rental income for income tax purposes. It was not relevant in this context whether the actual income was not received in equal shares. The FTT was unable to confirm any reference in the FC’s decision that stated the taxpayer was not beneficially entitled to co-ownership of the three properties. Accordingly, the FTT considered that as the taxpayer co- owned the three properties, she was, in the absence of a declaration to the contrary on Form 17, beneficially entitled to 50% of the income from those properties and due to pay tax thereon. She was also liable to the HICBC for 2019/20 due to her level of income (and to the HICBC for 2020/21 and 2021/22, regardless of income from land and property).

Practical tip

Form 17 can be completed online (tinyurl.com/HMRC-Form17Dec). Consideration of the conditions for a valid Form 17 declaration is beyond the scope of this article. HMRC guidance is available in its Trusts, Settlements and Estates Manual (at TSEM9800 and following).

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