Form 17, partnership, agreement.... ITA07/S836

pabloesc

hello...

so, my partner and I have formed a partnership a long long time ago, with our written agreement identifying my partner as being responsible for 99% of the income, as they do all the work related to the property management/changes etc.

Would I be right in thinking that the partnership agreement, for a married couple, means a Form17 is not needed to apportion income, as the Partnership agreement takes precedence? 

tia.

Jeremy535897

You are correct. A form 17 specifically excludes partnerships (see link below):

https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/SpecPersTax_iForms/1.0/17&template=17.xdp

Dead_keen

I guess I'd start by asking why you care about such a geeky question?  

Then I'd say it sounds a tad uncommercial to say that someone gets 99% of the income as they do all the work related to the property management.  In a normal property management situation, people who put the capital / bear the economic risks would in tend to get the lion share of the profit.  A letting agent might get c10% of the income but certaintly would not get anywhere near 99%.  So by saying something that seems so uncommercial, I would be wondering whether the settlements legislation would apply: https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4215  If it does, Form 17 is not relevant.

Then I'd ask whether you were sure that you actually have a partnership. Sharing income does not create a partnership.  Sharing profits means that you may have a partnership.   If you don't have a partnership then Form 17 is relevant.

Whether you have a partnership will depend on the facts - see section 1(1) and 45 of the PA 1890.  For that, you have to think about what the underlying activities are and whether they amount to a "business" (which may or may not be the same as the tax definition of "business").  For example, Lindley & Banks says: "On the other hand, the mere fact that a particular activity is profitable will not of itself turn it into a business: an example of such an activity is to be found in the management of a particular property, which may or may not qualify as a business, depending on the circumstances".  I know this is a favourite book of one of HMRC's partnership specialists and I know he likes the Salisbury House tax case.  But I have no idea what your underlying activities are and so have no idea whether this is relevant.  If someone was doing this from scratch now, it would seem to make sense to use and LLP rather than a GP to avoid that issue.

But assuming that you do have a partnership that is taxed under the normal partnership rules in ITTOIA then Exception C in s836 ITA 2007 will apply and this will override the deemed 50%:50% rule.  As, such you would not need a Form 17.

Jeremy535897

If all that is being considered is joint ownership of a property between two individuals, it is unlikely to be a partnership in the tax sense of the word, and the tax position then depends on whether the partners are married or in a civil partnership, or not. The question of whether there is a partnership for tax purposes is discussed here:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

Assuming there is no partnership, spouses/civil partners who jointly own a property (and a property partnership does not exist) are deemed to own it for income tax purposes 50:50, whatever the true ownership is, unless a form 17 is filed (which is not retrospective beyond 60 days). However, form 17 has to reflect the true beneficial ownership, not merely some figure chosen to suit the partners. If the partners are not married or in a civil partnership, the allocation of income between them reflects the actual beneficial interests.

pabloesc

Appreciate the replies.... the backdrop to this question was naivety, not geekiness…..

Have a long standing partnership agreement with my spouse for property letting, although in the early years we didn’t do much, then subsequently used form17’s to apportion rent fir subsequent properties a few years after.

My mistake was originally thinking I knew more than I did, hence the question, as I’m reviewing what paperwork we have prior to handing over to an accountant. 

Dead_keen

Good luck with your accountant.