Background
It is common for married couples to own assets in joint names. Income arising from jointly held assets is treated for tax purposes as divided equally between husband and wife, subject to rules relating to shares in close companies. It is also possible for the married couple to make a declaration setting out the actual division of ownership, which then also applies for tax purposes.
General rule
Married couples are taxed independently of each other. As a result, the income tax system must have a method of dealing with the income that arises from assets that are held in joint names. It provides that income is to be treated as arising 50% to each party. Therefore, half of the income from shares, land or other property that is held in joint names is taxed on each spouse.
The tax rule does not apply after a couple separate or divorce, or to any property that is held in the name of only one spouse.
Declaration of actual ownership
The equal division of income for tax purposes does not apply where a declaration has been made stating the actual division. Points to note are:-
• the declaration is of the actual division of ownership of the asset or assets concerned. It is not a declaration just for tax purposes, although HMRC manuals make it clear that it will not be usual to question the position.
• the declaration has no retrospective effect. It applies only from the date (or the latest of the two dates) of signing of the declaration by both spouses.
• the declaration, for which HMRC provide Form 17, must reach HMRC within 60 days of signing. If it is sent outside the sixty-day period it has no validity.
• the declaration should be accompanied by evidence of beneficial ownership.
The effect of a declaration to HMRC shall come to an end if there is any change in the actual division of ownership. A new declaration is required, without which the equal division of income rule will apply for tax purposes. A declaration also ceases to have effect where a couple separate or divorce. The income should be taxed according to the actual underlying ownership.
Close company dividends
As an exception to the general rule on a 50/50 split, dividends from jointly owned shares in close companies are taxed according to the actual proportions of ownership and entitlement to income. Close companies are broadly companies owned by five or fewer people and include most family companies.
Capital Gains
There is no equivalent for capital gains tax of the income tax rule providing for the equal sharing of jointly owned assets in the absence of a declaration. However, the general position may be summarised as follows:-
• there is a presumption that an income tax declaration remaining in force at the time of a disposal will also apply for capital gains tax purposes.
• where there is no declaration in force, actual division of ownership of an asset should be used for capital gains tax purposes where this is clearly evidenced.
• otherwise HMRC will normally accept that spouses held jointly owned assets in equal shares.
This blog has been prepared to offer our clients, actual and prospective some useful information on the tax rules relating to jointly held assets. It is not in anyway to be read and taken as comprehensive statement of the law on this subject. For more information and advice, please contact us on 0208 943 3577 or via email info@jacksonlonge.com
