Tax on Jointly Owned Properties
Do you own a property with your partner, friend, or a family member?
In England and Wales, the joint ownership of a property can be in two different forms – joint tenancy and tenancy in common.
Joint Tenancy
In joint tenancy, both the owners have equal rights to the whole property. If one of the owners dies, the part (half of the property) will be automatically passed on to the surviving partner.
For taxation purposes, each owner is treated as having an equal share in the property and its income. For example, you are a joint property owner of a house worth £100,000 along with your partner. The annual revenue generated from the property is £5,000 under joint tenancy. So, tax is calculated on the income of £2,500 for both owners. And, each property owner is taxed for half the capital gains generated from the property when it is sold. It is the standard followed for taxation for both spouses and other owners.
Tenancy in Common
In a tenancy in common, both joint owners are taxed on a predetermined share of the property.
For example, a person can own 40% of a property while his partner can own 60% of the same property. For computing taxes, each owner is taxed on the pre-fixed percentage in the tenancy in common. For civil partners and married couples, by default, the tax is determined on 50% of the share – regardless of whether the predetermined split is different.
Is it Possible to Change the Default 50 – 50 split?
We now know that the default split of share and income generated from joint ownership property is 50:50 for civil partners and married couples. You can change this equal default share by election. You’ll have to fill out Form 17 and submit to HMRC in order to make the changes in equal ownership.
How we can help
Couples need to understand that CGT (Capital Gains Tax) will arise out of any subsequent sale of the property and will be applicable as per the ownership ratio.
As qualified Property Accountants here at Ormerod Rutter, we can offer sound advice and help in tax planning for jointly owned properties.
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