If you and your partner jointly own a rental property, you might be missing out on a key tax-saving opportunity. HMRC allows couples to split property income in a way that could significantly reduce your overall tax bill—but only if you follow the correct process.

Here’s a step-by-step guide to splitting your property income legally and efficiently so that more of it is taxed at your partner’s lower tax rate.

Why Splitting Property Income Matters

By default, HMRC treats property income from jointly owned assets as split 50:50, regardless of how much each of you actually owns. That means if you’re in a higher income bracket, 50% of the rental income will be taxed at your higher rate—even if your partner earns much less.

Example:

• Partner A earns £60,000 a year (higher-rate taxpayer)
• Partner B earns £12,500 a year (basic-rate taxpayer)
• Property income: £10,000 per year

Under HMRC’s default rules, each partner reports £5,000 of income. But Partner A pays a higher rate of tax on their share, resulting in more tax paid overall.

Wouldn’t it be better if most or all of that income was taxed in the hands of Partner B, the lower earner?

It’s possible—but only if you follow two key steps.

Step 1: Draft a Deed of Assignment

The first legal requirement is to draft a Deed of Assignment with a solicitor. This document transfers the beneficial interest of the property from the higher-earning partner to the lower earner.

For example:

• Joe owns a construction business and earns £60,000.
• His wife, Sarah, works part-time and earns £12,500.
• Joe transfers a larger share (or full share) of the beneficial ownership of the rental income to Sarah using a deed of assignment.

This step formalizes who receives the income benefit, regardless of the legal ownership registered with the Land Registry.

Step 2: File a Form 17 with HMRC

Once the beneficial interest has been legally assigned, the next step—often missed—is submitting Form 17 to HMRC.

Form 17 notifies HMRC that you’re declaring property income in accordance with the actual beneficial ownership, rather than the default 50/50 split.

You can download and complete the form from HMRC’s website. It’s relatively straightforward, but if you’re unsure, consult with a tax adviser or accountant.

Important:
Both the Deed of Assignment and Form 17 must be completed and submitted correctly. Failing to do either step can lead to penalties, interest, and possible investigation by HMRC.

Benefits of Splitting Property Income Properly

By reallocating rental income to the lower-earning spouse, you can:

• Lower your household’s total tax liability
• Keep more of your rental income
• Stay fully compliant with HMRC rules

It’s a smart tax strategy—but only when done right.

While the process isn’t overly complicated, it does involve legal and tax documents that must be executed precisely.

To avoid costly mistakes and HMRC issues, consider hiring a professional accountant or tax adviser.

By doing it the right way, you’ll gain peace of mind—and potentially save thousands in tax.

Need help with property tax planning?

Our team specialises in helping couples optimise their rental income.

Reach out today and take the stress out of tax season.