Owning a rental property with somebody else can sound fairly straightforward.
You own the property together.
The tenant pays rent.
You pay the bills.
Whatever is left is the profit.
So surely you just divide everything between you?
Not necessarily.
One of the questions I hear around jointly owned rental properties is who actually needs to declare the rental income — particularly where one person receives the rent, one person pays most of the expenses, or one owner pays tax at a much higher rate than the other.
And this is where it is important not to decide the tax treatment simply by looking at whose bank account the money passes through.
Who pays tax on a jointly owned rental property?
For tax purposes, HMRC says the person liable to tax on property-business profits is the person receiving or entitled to the profits.
Where a property is jointly owned, you therefore need to establish each person’s share of the rental profits.
HMRC also makes an important distinction: simply receiving rent on somebody else’s behalf does not necessarily make that rent your income for tax purposes.
That matters because real life is rarely as tidy as the paperwork.
You might have a couple where:
- all the rent goes into one person’s bank account;
- that same person pays the mortgage, insurance and repairs;
- both people own the property; and
- at the end of the year they regard the rental profit as belonging to both of them.
Looking only at the bank account doesn’t necessarily tell us the whole tax position.
What if you’re married or in a civil partnership?
There is an additional rule for married couples and civil partners who live together.
Where property is held jointly, the general income-tax rule treats the income as belonging to them 50:50.
And importantly, that can apply even where their actual ownership interests are unequal.
So imagine a married couple jointly own a rental property.
One spouse is a higher-rate taxpayer. The other has little or no other income.
They might understandably think:
“Why don’t we just put most of the rental income on the lower earner’s tax return?”
But you cannot simply choose whichever split produces the lowest tax bill.
HMRC’s guidance is very clear that married couples and civil partners do not have a general option to divide jointly held property income however they wish.
What about Form 17?
This is where Form 17 sometimes comes into the conversation.
Where a married couple or civil partners genuinely have unequal beneficial interests in both the property and the income arising from it, they can in certain circumstances make a joint declaration to HMRC so that they are taxed according to those actual unequal interests rather than the standard 50:50 basis.
But Form 17 does not create the unequal ownership.
It is not a form you complete saying:
“From now on, we’d like the rent taxed 90:10 because that’s better for us.”
The underlying beneficial interests must actually exist, and the income split declared must correspond with the interests in the property. HMRC also requires evidence of the beneficial ownership with the declaration.
This is an area where it is worth taking advice before changing anything, because changing beneficial ownership can have consequences beyond simply changing how the rental income appears on a tax return.
If you prefer to watch, I explain how rental income is taxed when a property is jointly owned and why the answer isn’t always as simple as splitting everything 50:50
What if you’re not married or in a civil partnership?
This is another important distinction.
The special 50:50 rule does not simply apply to everybody who owns a rental property jointly.
For example, unmarried partners, siblings or friends who jointly own property are not brought within the married-couple 50:50 rule merely because both names appear on the property.
HMRC specifically confirms that people other than spouses and civil partners cannot use Form 17 either. Their income is instead attributed according to their entitlement.
So don’t hear “joint property” and automatically assume “50:50 for tax”.
The relationship between the owners matters.
But I receive all the rent
This is where things get interesting.
Suppose you own a rental property with somebody else, but the tenant pays all the rent into your bank account.
Does that automatically mean all the rental income belongs on your tax return?
Not necessarily.
HMRC recognises that somebody can receive rent on behalf of another person. Receiving the money as an agent for somebody else doesn’t automatically make all of that income theirs for tax purposes.
But equally, you shouldn’t automatically assume the opposite.
Where who receives the income appears different from who is entitled to it, HMRC says the reality of the arrangement needs to be established.
That is why I would want to understand what is actually happening rather than simply looking at the name on the bank statement.
What if I pay all the rental expenses?
Here’s another situation I see in practice.
One person receives the rent and pays practically everything:
the mortgage, insurance, letting-agent fees, repairs, service charges and other property costs.
Then the couple divide whatever is left between themselves.
It’s very easy for that person to think:
“Well, I paid all the expenses, so surely they’re all my tax deductions.”
Again, who physically made the payment is not necessarily enough on its own to determine the tax treatment.
You first need to establish the underlying rental-income position and how the property business profits are attributable between the owners.
There’s more to consider where one owner pays all the property expenses, so I’ll look at that situation in a separate article.
Related: Landlord Expenses: Just Because You Paid for It Doesn’t Mean It’s Tax Deductible
And if you’re unsure which property expenses are actually deductible in the first place, that is a useful place to start.
What if we’ve always declared it 50:50?
Don’t change the percentages on your next tax returns simply because you’ve now realised another split might produce a better tax result.
First establish:
- Who owns the property?
- What are the actual beneficial interests?
- Who is entitled to the rental income?
Then consider the rules that apply to your particular relationship and ownership arrangement.
For married couples and civil partners, a valid Form 17 declaration can override the standard 50:50 treatment where the qualifying conditions are met. Without one, the standard rule generally continues to apply to jointly held property.
What if we haven’t declared the rental income at all?
This is where joint ownership can create another problem.
Sometimes rental income hasn’t been reported for several years, and before calculating anything we first have to establish whose rental income it actually was.
That can be particularly important where:
- the property has been owned for many years;
- only one person dealt with the property;
- rent went through one bank account;
- the owners were married during some periods but not others;
- ownership changed; or
- nobody has previously declared the rental income.
Don’t simply take the total rent, divide it in half and assume the job is done.
Related: How Do You Tell HMRC About Undeclared Rental Income? (UK Guide)
And where the problem goes back several years, this article may also help:
Related: How Many Years Back Can HMRC Check Rental Income? (UK Guide)
The important point
Joint ownership doesn’t always mean that the tax answer is simply:
“Divide everything by two.”
For married couples and civil partners living together, there is a specific 50:50 rule for most jointly held property income, with Form 17 available in particular circumstances where genuine unequal beneficial interests already exist.
For other joint owners, different principles apply.
And the fact that one person receives all the rent or pays all the bills does not, by itself, give you the complete answer.
The starting point is understanding the ownership, the entitlement to the income and the actual arrangement between the people involved.
Need help reviewing your rental-property tax position?
If you jointly own a rental property and you’re unsure who should be declaring the income — or you’ve realised rental income hasn’t been reported correctly in previous years — you can book a Paid Tax & Property Consultation with Grace Certified Accountants.
We’ll look at your circumstances and help you understand what needs to happen next.