Form 17 Query

Form 17 Query

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A married man is the sole legal owner of a property that gives rise to investment income and is free of mortgage.  It is not a partnership and not FHL.
He is minded to rearrange his family's affairs by providing his wife with an 80% beneficial share of both the income and capital in the property, and he is desirous of the tax consequences mirroring the beneficial ownership.

Rather than go through the cost and hassle of transferring legal ownership into joint names as tenants in common, with associated conveyancing, legal and land registry admin and costs, he simply declares a simple bare trust to that effect.

First question: Does the trust have to be notified to the land registry anyway?

Second question:  Does a form 17 need to be filed, in the absence of which it would be assessed 50:50 (as from trust declaration)?

On the second point I am in two minds, leaning in favour of form 17 requirement. Had the legal ownership been in joint names then the answer is obvious; yes a form 17 would be required.

The statutory provisions are set out in s.836 ITA 2007. CCH commentary and the guidance notes on HMRC website are consistent in advising that only if property held in joint names is enjoyed otherwise than equally is there a requirement to file form 17. But s.836 makes no mention of joint ownership, only that "income arises to individuals ...". Hence my tentative conclusion that form 17 is required, possibly at odds with the commentary and guidance.

With kind regards

Clint Westwood

Replies (3)

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Portia profile image
By Portia Nina Levin
12th Oct 2015 11:21

I do not care what CCH's commentary is, nor what it says on HMRC's website.

Absent anything to the contrary, the income should be taxable according to the individual's beneficial ownership, on general principles.

Section 836 is then a something to the contrary, but it says "this section applies if income arises from property held in the names of individuals...who are married to...each other, and who live together".

So the first question is, is the property held in the names of such individuals? or is the property only held in the name of one such individual (who cannot be married to and living with himself)?

Section 836, and therefore form 17, do not apply in my view. You appear to be suggesting that HMRC and CCH do, in fact, agree with me, leaving you in the minority?

Thanks (1)
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By nogammonsinanundoubledgame
12th Oct 2015 11:41

Thanks

Yes I may be in the minority.

I am pretty confident that the purpose of the legislation is consistent with my interpretation, but I have always been sticky over when purpose takes precedence.

I suppose it is down to whether the meaning of "held in the names of individuals" is required to take into account the declaration of trust.

I cannot believe that this question has not been considered multiple times in the past and the legal issue settled beyond question.

I suppose it can't hurt to file a form 17 (other than the time it takes to do it). The worst that can happen is that it is ineffective, but in that case the desired split would be achieved by the normal operation.

With kind regards

Clint Westwood

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Portia profile image
By Portia Nina Levin
12th Oct 2015 12:17

"Held in the names of"

"Held in the names of" quite clearly refers to the legal, rather than the beneficial, ownership in my opinion.

The former provision, ICTA 1988, section 282A, as originally introduced by FA 1998, referred to "income arising from property held in the names of a husband and his wife [living together]".

The parliamentary draftsman chose to refer to being "held in the names of", rather than "beneficially owned by", or something similar. We can only assume that it was a deliberate choice.

HMRC seem to accept that interpretation at http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9810.htm, which is clear when the 50:50 rule does not apply.

I would put a copy of that guidance on my file(s), declare the income according to the beneficial interests, and forget about form 17. HMRC can then be referred to their extant guidance at the time of filing the return if they take issue, which I doubt.

Thanks (1)