On the 9 July, David Rickwood, Personal Tax Director for Shaw Gibbs posted the top 10 tax considerations residential landlords need to take into account.

Following is my answer to David’s fifth point - If you co-own properties with your spouse, have you declared your beneficial interests in the property income arising?

Unless you bought the property as tenants in common (where you each own a specific share in the property) HMRC will deem that you own the property equally, and thus any rental income arising is split 50:50.

You are able to jointly elect to receive your income on a different basis (99:1, 80:20 or any other split), but HMRC must be notified of the change.

Once you have decided how you would like to split the income received, you need to draw up a Declaration of Trust, this will state the new basis of ownership of the property and the date the change becomes effective. Once you have the Declaration of Trust, you must also complete “Form 17” (download from HMRC website). Both documents should be submitted to HMRC within 60 days of the date the Declaration is executed. If this is not done HMRC will not recognise the Declaration and will continue to treat the property as equally owned.

As the Declaration of Trust is a legally binding document this should be prepared by your solicitor.

The Declaration remains in force until you jointly elect to change it. You can change the beneficial interest whenever you want by preparing a new Declaration.

Why would I want to own the property in unequal shares?

It can prove beneficial to hold property in unequal shares where one spouse is a higher rate taxpayer, and the other is either non-working or a basic rate taxpayer. This is due to the fact that the declaration allows you to vary how the income is allocated between you, and thus minimise the income tax liability arising.

What about capital gains tax when we decide to sell?

The capital gain will be calculated in accordance with the ownership of the property. If the Declaration shows the split is 99:1, the sale proceeds would be split in the same way.

Once you have decided to sell the property, you should consider amending the Declaration of Trust accordingly. This will enable you to maximise the annual capital gains tax exemptions available – currently £12,000 each.

There are no capital gains tax implications for transferring the share of the property between yourselves, as transfers between spouses are exempt from capital gains tax.