Date Published 23 May 2017
Q: My friend and I were struggling to get onto the property market, so we decided to buy a property together. I paid 75% of the deposit and mortgage whilst my co-buyer pays 25%. We have lived in the house for several years, though have now decided to both go our separate ways. We have decided to rent the house out and we have been told we need to complete a form 17 for the HMRC.
Is this correct?
A: In a nut shell no! Basically when you purchased your house you could have done this in one of two ways. Either holding your beneficial interest as Joint Tenants or Tenants in Common. The difference between the two is that the former you are deemed to own the property in equal shares 50/50. Should one party die then the other share will automatically transfer to the other party even if a deceased Will states otherwise and the proportion of deposit initially paid or monthly contributions differ. With the latter the ownership is held in a fixed percentage which may not necessarily be 50/50. So in your case I would assume that the house is held 75 / 25. This means that if either party wishes to dispose of their share then they are entitled to sell or dispose in say a Will their share of the property. I would suggest that you check what you have as most sharers typically would hold their interest in the latter and most married / civil partnerships in the former. Though this is not always the case.
Form 17 is a legal document which only applied to ‘tenants in common' like what you probably have, though the big difference is that it only applied to married couples / civil partnerships. By default (S836 Income Tax Act 2007) any rental income received is taxed for married / civil partnerships 50:50 irrespective of the percentages held unless you complete Form 17 and submit this to the HMRC.
The form needs signing by both parties and applied only whilst they live together. The proportions held by each party are not listed within the title deeds and is detailed via a ‘declaration of trust' document which is then registered with Land Registry. I would assume that this is what you probably completed when you purchased the house in your 75:25 share.
Some married / civil partnership couples may prefer buying via a tenants in common and completing a declaration of trust together with form 17. The advantage of this is that form 17 can be changed as many times as they wish and owners who keep slipping in and out of the higher/lower tax brackets can find it more beneficial to allow a lower or non-earning owner to utilise their tax codes more efficiently to reduce both parties' tax liabilities. As you are not married, or if married / civil partnership not living together then Form 17 is not required.