5 Astonishing Ways Jointly Owned Properties Get Taxed

Ever wonder if you and your spouse (or a friend) might be missing out on a huge tax break by splitting your rental property profits the wrong way? Here are five must-know facts about joint property ownership that could keep more money in your pocket!

The 50:50 Rule for Married Couples—But with Surprising Exceptions

When a married couple or civil partners jointly own a rental property and live together, the default rule (based on ITA 2007, s 836) is that each partner is taxed on exactly half of the rental profits—even if one partner actually put in 90% of the cash for the place. This 50:50 Split is automatic and can lead to big tax advantages—or disadvantages—depending on each person’s income level. (From 6 April 2025, the exceptions D and DA of s836(3) ITA 2007 have been withdrawn, and the 50:50 default position applies.)

However, like many tax rules, there are a few jaw-dropping exceptions. The 50:50 Split doesn’t apply when:

1. The property qualifies as a Furnished Holiday Letting (FHL).
2. The income comes from a partnership (i.e., there’s a formal partnership agreement about how profits should be shared).
3. A valid Form 17 declaration has been filed, revealing that the actual ownership shares differ from 50:50 and should be taxed accordingly.

What If More Owners Are Involved?

If, say, you and your spouse plus a third person all share a property, the law says the non-spouse owner will be taxed on their agreed share of the profits. Meanwhile, any profits allocated to the married couple are still automatically split 50:50 between the two of you—unless you file the special Form 17.

Could One Spouse Be Taxed on Everything?

Yes, if one spouse simply gifts their entire share of the property to the other spouse. But watch out: if the “gift” is mostly designed to pass on rental income and not real ownership of the property, it could trigger the “settlements legislation,” meaning the spouse who made the “gift” might still be taxed on that income.

Furnished Holiday Lettings (FHLs)—The End of Easy Flexibility

Traditionally, profits from a Furnished Holiday Letting (FHL) have been treated differently than normal rental profits. Under ITA 2007, s 836 Exception D, the owners could split FHL profits in almost any proportion they wanted, often matching how much work each person put into managing or cleaning the property.

Why Was This So Helpful?

It meant you didn’t need a Form 17, and you could choose to shift more rental income to the spouse in the lower tax bracket one year and switch it up the next year if circumstances changed.

Game Changer: FHLs Become ‘Normal’ Rentals in 2025

Starting 6 April 2025, FHL profits will be lumped in with regular rental profits for tax purposes. That means the old 50:50 rule for spouses swings back into action. If you rely on an FHL for your property income, you’ll lose that automatic flexibility—unless you file a valid Form 17 (or qualify under another exception). If you own the FHL with someone who isn’t your spouse, there’s no change, and you can keep splitting profits however you wish.

Partnership Rules—Could They Overrule the 50:50 Split?

If you run a large property business that’s structured as a partnership, you might dodge the 50:50 default altogether (thanks to ITA 2007, s 836 Exception C). In a true partnership, profits are split according to the partnership agreement, which could say 80% goes to you and 20% to your spouse or any other ratio.

But Is It Really a Partnership?

The UK tax authority (HMRC) won’t just accept that you’re a partnership without proper proof. According to PIM1030 in HMRC’s Property Income Manual, you need real business organization—maybe you’re advertising, hiring cleaners, offering extra services, or managing multiple properties on a large scale.

• Small-Scale Landlords: If you and your spouse rent out a single flat or house, it’s pretty tough to qualify as a partnership. HMRC generally sees that as just two people owning a property, not an official partnership.
• Significant Operations: If you manage a portfolio of properties, handle detailed bookkeeping, market the rentals, and offer tenant services, you might have the sort of “partnership” that meets HMRC’s standards.

Don’t assume calling yourself a “partnership” is enough. You need genuine evidence, or you risk being tossed back into the 50:50 default rule.

Form 17—Maximize (or Minimize) Your Spouse’s Share the Legal Way

If you’re a married couple who co-owns a rental property, Form 17 can be a powerful tool to potentially save hundreds (or thousands) in taxes—if used correctly. This form tells HMRC that you want to be taxed based on each spouse’s true beneficial ownership of the property rather than the automatic 50:50 Split.

You need to prove your actual ownership percentages. For example, you could put up 80% of the money to buy the property, so you own 80%. That allows you to pay tax on 80% of the profits, and your spouse pays tax on only 20%. Depending on your respective incomes, this might keep both of you in lower tax brackets.

How to File a Valid Form 17

1. Sign and Date the Form: Both spouses must sign.
2. Send It to HMRC Within 60 Days of the date it was signed. Miss that deadline, and you’re stuck with 50:50.
3. Include Evidence: For instance, show you’ve changed the property’s deeds, or you have a declaration of trust proving who owns what share.
4. Keep an Eye on Future Changes: Once Form 17 is on file, it stays effective until either spouse’s beneficial ownership changes, one spouse dies, or you permanently separate or divorce. If your income situation changes drastically, you might regret the Form 17 setup—so keep reviewing it.

Splitting Property with Non-Spouses—More Freedom, Fewer Rules

So what if you co-own property with someone who isn’t your spouse, like a sibling, a friend, or an adult child? Generally, you can split profits in whatever ratio you agree with among yourselves, often matching your actual shares in the property. If you want a 70:30 split or 60:40, that’s fine—and you don’t need Form 17.

However, watch out for some hidden traps:

• Minor Children: If a parent gifts property or money to an unmarried minor child, and the rental profits exceed £100 a year, the parent is still taxed on those profits (thanks to ITTOIA 2005, s 629). This is part of the “settlements legislation,” designed to stop parents from shifting income to their kids to dodge taxes.
• Retained Benefit for the Settlor: If you set up a trust or arrangement where you (the original owner) still benefit from the property or can control it in some way, the settlement rules can make you pay the tax anyway.

Thinking About Transferring a Share?

If you’re considering a formal gift of your share to another person, note that any outstanding mortgage might trigger taxes like stamp duty land tax (SDLT) if the new owner “takes on” part of the mortgage. Always check with your lender first because they might have rules about transferring ownership.

Tips for 2025—Especially for FHL Owners

Massive Change for FHL Owners:  Starting 6 April 2025, all FHL income you share with your spouse will default to the 50:50 rule. If that’s not what you want, you may need to:

1. File a Form 17: If you genuinely own different shares of the property.
2. Consider Shifting Ownership: Transfer more (or less) capital interest to your spouse. This could involve the “nil gain, nil loss” rule for capital gains tax (CGT) on spouse-to-spouse transfers—be sure the transfer is a real transfer of ownership, not just a disguised income shift.
3. Review Mortgage Arrangements: If you’re transferring property with a mortgage, the new owner has to accept part of that mortgage, which may trigger extra costs.

Is Your Joint Property Tax Setup Costing You?

Jointly owned property can be a fantastic investment opportunity—but how you split the rental income can drastically affect your total tax bill. While the law defaults to an equal share for spouses, intelligent planning (like using Form 17 or a legitimate partnership structure) might save you a bundle in taxes. Just remember:

• The 50:50 rule is automatic for married couples in most standard rental setups.
• FHL profits once offered flexible splits, but from April 2025, that ease goes away for spouses.
• Form 17 is powerful but can’t be backdated, so timing is key.
• Partnerships need actual business-like operations to pass HMRC’s test.
• Non-spouse owners have fewer constraints but watch out for rules about gifting property to minors or for mortgages.

If you co-own rental properties, especially as a married couple, understanding the rules is crucial. A simple mistake, like not filing Form 17 on time, can lock you into an unfavourable profit split for years. Stay proactive by monitoring your income levels and adjusting ownership shares as needed. Consulting our tax consultants could be one of the best decisions you can make for your property investments!

For Tax Investigations, tax resolution or appeals, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.