TT195: Fixing Tax ‘leaks’

Hopefully by now you will have all filed your Self-Assessment tax returns if you needed to do so.
The media is currently full of opinions on tax avoidance but whatever your view, few would disagree that straightforward tax planning is a sensible thing to do and yet there is one area where the tax department at Barnes Roffe LLP frequently sees more tax being paid by clients than strictly necessary.
This is where married couples (or civil partners) have income producing assets which are jointly owned but while one partner is a higher or additional rate tax payer, the other partner is a basic rate taxpayer or even pays no tax at all. Such assets are typically bank accounts, rental properties or other investments.

HMRC’s view is that where an asset is jointly owned, the default position is that the income should be split 50/50 and this can lead to more tax being paid than if the income were taxed wholly on the basic tax or no tax paying partner. This is what is known as a ‘tax leak’ as tax is leaking away that need not be paid.

It is however, possible to fix that leak! As stated above HMRC will treat the income as taxable on a 50/50 basis unless it is declared that another split is justified. But HMRC are helpful in this regard as they actually provide a form to enable taxpayers to make that declaration. It is called a ‘Form 17’ and is readily downloadable from HMRC’s website. The form allows partners to declare that income from a particular source should be taxable on any basis they choose. Clearly it would be best from a tax perspective that where one partner as paying tax and the other paying tax at a lower rate or even not at all that the second partner should be taxed on all the income.

Of course, the Form 17 must reflect the actual underlying ownership of the asset and so it would be necessary to execute what is known as a “Declaration of Trust” or similar document to confirm what the new beneficial ownership of the asset is going forward. We have staff at Barnes Roffe LLP who have advised many clients on such declarations and would be happy to help you.

The Form 17 cannot be used in a retrospective basis as it should be submitted within 60 days of any declaration being signed. Now that the rush to submit tax returns is over, it might pay to take some time to review jointly held assets to see if a declaration should be made and a Form 17 submitted. The Form 17 itself has very helpful notes but of course, your Barnes Roffe LLP contact will always be happy to provide any advice you might need to make sure you make the right choice to minimise your tax leaks.

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