I have just completed as tax return for a new client. When he came in to sign it earlier he happened to mention that he jointly owns a house with his ex wife that is rented out. As part of the divorce settlement he agreed (unofficially I think) not to take any of the income but he does jointly own the house with this ex.
My client says his ex wife's accountant (my clients old accountant) approved this arrangement however my understanding is that if they both own 50% of the house they should both declare 50% of the income. They could sign a declaration (HMRC form 17) stating their beneficial interest in both the property and the income arising from it but a declaration is only valid if their interest in the income matches their interest in the property itself.
I'm pretty sure I'm right on this or is there something I'm missing. I know the clients ex wife's accountant and he's usually pretty good.
Replies (5)
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Jointly owned property income can be split as the owners wish - except for married couples and Civil Partners.
As they are no longer married, the above restriction does not apply.
See
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem9866.htm
Unmarried joint owners of property are under no such constraints (as a H&W joint owner). They can also own equity interests in the property in different proportions from their ownership of the rental income. You need to check potential s809AZA ITA 2007 issues.
What if...
Since we are on this topic, what if a house is owned by two sisters at 50/50 but one of them do not want to be part of this hassle of rental accounts etc every year. Is it correct to declare 100% beneficial interest toward one sister and let her declare all the income and expense under her name and she will be the one who will eventually owns the house even though at present it is owned by both sisters officially.
There could be CGT, SDLT and IHT implications for the donor sister, depending on the numbers involved.