Declaration of Trust over income (Form 17)

Trusts Discussion
1

I’ve come across an interesting situation where four people co-own a commercial property: Mr A, Mrs A and Mr B, Mrs B, two married couples.

Is it possible for them to enter into a Declaration of Trust over income only under the married couples rule and submit Form 17 to HMRC? Or does this only apply in situations where there is one married couple on the title?

Thanks in advance

3

Hi Rachel,

Id suggest yes they can. Or there is nothing initially stopping you filing a F17.

HMRC may query if the 4 owners are a partnership on the property which would result ìn HMRC denying the claim.

Richard C. Bishop
PFEP

4

No it’s not possible.

Where property is owned by a married couple and additional third parties the “50/50” rule does not apply. It only applies where property is held in the names of persons married to each other.

Malcolm Finney

1 Like
5

The form doesnt technically specify those requirements.

ITA 2007 s836(1) simply states “property held in the names of” argubley s836 doesnt require 100% ownership or only applies if held with “no other names”.

I agree with Malcolm’s interpretation - however the legislation isnt totally clear IMO.

Richard Bishop
PFEP

6

ITA 2007 s 836 contains the relevant legislative conditions and requirements regarding jointly held property. Form 17 merely provides the information HMRC require to accept the “declaration” made under s 837 (which relates to s836/(3) exception B). S836, not Form 17, is the key to the law.

I think it is clear that under s836(1) the section only applies to “… property held in the names of individuals (a) who are married… to each other and (b) who live together.” In other words, the section has no application to property held. by., say, a married couple living together and other third parties.

Malcolm Finney

1 Like
7

Agree with the above.

Richard Bishop

8

Where property is owned by a married or CP’d couple ‘living together’ (and, as others have said, by no one else) then for income tax purposes by default they are taxed 50:50 regardless of the actual ratio of ownership. They can elect to be taxed on the actual ratio (which is pointless, of course, if it is 50:50). The election must be made on form 17. The ratio must apply to income and capital..

So, as others have said, form 17 is irrelevant to your ‘plan’. The fly in your ointment is s 626(3). If the donor spouse merely gifts income then you would have a settlor-interested trust. The donor must gift X% of his interest in the capital as well as X% of his interest in the income for the donee spouse to be taxed on the lion’s share of the income.

9

Ignoring the fact that as noted by Malcolm, in this particular case Form 17 would not be valid, I’m not sure why the partnership comment is relevent here? Form 17 only applies to jointly held property that is not in a partnership. If there is an argument that there is a partnership rather than simple joint ownership you can split the profits according to the partners agreement and Form 17 would not be required.

You do not need a partnership to make a Form 17 election so not sure why HMRC would even raise the point or ‘deny the claim’.