The First-tier Tribunal have held that a married couple's agreement to pay to the wife rental income from a jointly held property did not prevail over the operation of the provisions of the Income Tax Act 2007. In a recent case a husband and wife had an agreement to pay the rental income from a jointly property solely to the wife. The agreement was purely an understanding between the couple and there was no written Declaration of Trust.
It was decided by the tribunal that this verbal agreement was not effective and accordingly the husband should be assessed on 50% of the rental income.
Under section 836 of ITA 2007, a husband and wife living together are assessed on the income from jointly held property on a 50/50 basis. If a couple hold property or income on a basis other than this, they have the option to make a declaration of their beneficial interest in a particular asset and to have the income arising assessed according to the respective proportions in which they hold the property.
A solicitor, or your accountant, can help you prepare the declaration but there are stringent timescales about when they should be registered with HMRC. The election should be made on HMRC's form.
The tribunal found that as there was no declaration showing an unequal beneficial interest in the property. The couple's arrangement, in which the rental income was paid to the wife's bank account, was not sufficient to rebut the presumption of a 50/50 ownership.
For more information on declaring your beneficial interests in a property, or to instruct Thomas Flavell & Sons to draft a Declaration of Trust please contact Chris Stratford.