Form 17: Splitting Rental Income

Are You Paying More Tax Than Necessary?

Making Tax Digital for Income Tax (MTD for IT) was introduced from April 2026. It will bring more landlords into scope over the next couple of years. Under Making Tax Digital for Income Tax, each individual reports their own share of property income. Landlords must understand who is entitled to the income. It’s also important for them to review whether they are being taxed on the correct share.

For married couples and civil partners living together, the default position for jointly owned rental properties is that the income is split 50/50 between them, even where the actual beneficial interests in the property are unequal. Where one individual pays tax at a higher rate than the other, this can result in more tax being paid than necessary.

Form 17 Declarations

Where spouses or civil partners genuinely own a property in unequal beneficial shares, a Form 17 declaration can allow the rental income to be taxed according to that ownership. This can improve tax efficiency where one individual pays tax at a lower marginal rate. This also ensures that each individual reports the correct share of income under MTD for IT.

Landlords must understand that Form 17 does not create an unequal ownership split. It tells HMRC about an unequal beneficial interest that already exists. HMRC requires evidence supporting the unequal interests, which will often take the form of a declaration or deed of trust.

Form 17 ensures that the tax treatment follows the ownership split already in place.

Example:

A couple might purchase a rental property together. One contributes 80% of the purchase price and the other 20%. They document their beneficial ownership through a deed of trust. Alternatively, one spouse might later genuinely transfer part of their interest in an existing property to the other.

Crucially, this means changing ownership of the property itself, not simply deciding who will report the rental income. The spouse with the 80% interest in the example genuinely has an 80% beneficial interest in the property, not just an entitlement to 80% of the rental income.

For MTD for IT purposes, the owners should therefore ensure that the income recorded and reported by each of them reflects the underlying ownership and correct tax treatment.

Getting the ownership split right for MTD for IT

As MTD for IT is rolled out, landlords will be reviewing how they keep their property records and report their rental income. For jointly owned properties, this is a good opportunity to check that the income is being split correctly and ensure MTD for IT records are set up accordingly from the outset.

Where spouses or civil partners have unequal beneficial interests, a Form 17 declaration may be appropriate. Form 17 must reach HMRC within 60 days of the date it is signed by the last spouse or civil partner, together with evidence of the unequal beneficial interests.

However, be careful not to “let the tax tail wag the dog”. Changing the beneficial ownership of a property should not be undertaken solely with the annual Income Tax position in mind, as there may be wider tax and legal consequences to consider.

Get In Touch

Contact your local Whitings office for more information or advice on the topics discussed above.