HMRC paying close attention to how rental income is divided between spouses

Like many things, the allocation of income between spouses is a common area allowing some simple planning but there are rules for the unwary.

One such area that HMRC seem to be paying close attention to at the moment is how rental income is divided between spouses. The law on this point has not changed for many years. Leaving aside true property businesses and FHL, where rents are received from a jointly-owned asset, then the income is split 50/50 by default under s836 ITA 2007.

However, it is possible to vary this under s837 provided that:

• a joint election is made (on Form 17); and• they are beneficially entitled to unequal shares of the income.

Form 17 requests proof of the second point. If property is owned as joint tenants, then the split is 50/50. Property can be owned in unequal shares as tenants-in-common but this would require some sort of paperwork to be in place.

It appears HMRC are taking more interest in this point, so forewarned in forearmed!