Tax and finance tend to be two things the average person would not like to spend too much time dwelling on, so it’s not totally uncommon for certain forms and declarations to slip between the cracks. One such form that can often go unnoticed yet holds pretty big implications for married couples owning rental properties, is Form 17.
In this blog post, we’ll be taking a closer look at Form 17, and shedding some light on its purpose, implications, and how it affects rental income tax declarations for married couples
What is Form 17?
Before we leap into all the details, let’s take a moment to quickly explain what Form 17 is. If you’re already clued up on this form, you can skip this bit!
Form 17 essentially allows married couples or civil partners who share property ownership to declare their true ownership percentages for tax purposes. This means that they can then be taxed based on how much of the property they actually own, rather than the standard assumption of a 50/50 split made by HM Revenue & Customs (HMRC).
Rental income tax declaration for married couples
If a couple is married or in a civil partnership and jointly own rental properties, then HMRC will normally just divide the taxation equally on the assumption that each partner has a 50% ownership over the property. However, this standard approach isn’t always appropriate, for example, one partner may have contributed significantly more financially to the purchase or upkeep of the property.
If this sounds like your situation, then filling out a Form 17 can be really beneficial to protect both parties involved in the property’s ownership. By completing Form 17 and providing supporting documentation like a Deed of Assignment or a Deed of Trust, couples can specify their actual ownership percentages in the property. This declaration allows HMRC to tax each partner based on their respective ownership shares, rather than just applying a default (and potentially wrong!) 50/50 split.
Implications for capital gains tax
Form 17 isn’t just about dealing with the taxes you pay on the money you make from renting out your property either. It also affects how much tax you’ll owe if/when you eventually decide to sell it.
Let’s talk about capital gains tax (CGT). This is the tax you pay on the profit you make from selling something valuable, like a rental property. When you sell, CGT is calculated by looking at the difference between what you sell the property for and what you originally paid for it, taking into account any money you spent on improvements or expenses along the way.
Now, if you and your spouse jointly own the property, you both usually get your own CGT allowance. This is like a little pot of tax-free profit you’re allowed to make before you have to start paying CGT. This is where Form 17 can be especially beneficial. By filling out this form and declaring exactly how much of the property each of you owns, married couples can potentially take advantage of both spouses’ CGT allowances. This means you might end up owing less tax overall when you sell the property.
How do I fill out a Form 17?
If the above information has you scrambling to submit a Form 17, then good news; it’s a pretty straight forward process! However, like all forms it does require some attention to detail, so to help you out, we’ve put together out top tips for filling out this form:
Gather documentation: Make sure that you collect all the relevant documentation, such as the property deed, mortgage statements, and any agreements outlining ownership shares.
Complete Form 17: Fill out Form 17 carefully and accurately, providing details of both spouses, the property in question, and the desired ownership shares.
Attach supporting documentation: It’s a good idea to include any supporting documentation that shows the ownership shares declared in Form 17, such as a Deed of Assignment or a Deed of Trust.
Submit to HMRC: Once you’re done, you can then send the completed Form 17 and supporting documentation to HMRC either by post or electronically, ensuring it reaches them before the relevant deadlines.
Keep records: This one can be easy to forget, but it’s important that you keep hold of all of the documents submitted, as well as any correspondence with HMRC, for your records.
Always speak to your property solicitor before doing this, so they can fully advise on the legal aspects of this procedure.
If you have questions about any aspect of your finances, please get in touch with the Trinity team. We’d love to help!
