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HMRC won't recognise ownership split prior to Form 17 submission
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Seekingunderstanding
Posts: 8 Forumite

Hi,
I own a rental property with my wife which she inherited from her mother. I own 1% and she owns 99%. This was documented with the Land Registry in Feb 2019 and prior to its rental. We've diligently kept all the financial records.
Life has been extremely hectic (work, family, pandemic) and as my wife's share of the income was less than her tax free allowance for 2019/2020 and 2020/2021 and 2021/2022 I believed we did not have tax to pay or have an issue to resolve. However as she has now started to receive a DWP pension I realised that she would need to start paying tax for the tax year 2022/2023.
I looked at the HMRC site for guidance which revealed that we needed to submit a Form 17 to have the split of the ownership recognised by HMRC. I've submitted the form, with supporting evidence and requested that they back date it to Feb 2019 in-accordance with the Land Registry documents. However they ignored this and set the date as the submission date of March 2022. This means I have ta ax liability for 50% of the property income for every tax year 2019 through 2022 and as a 40% tax payer a large unexpected tax bill.
I've started and I'm in the process of making a Disclosure for my property tax income to HMRC under the Let Property Campaign. HMRC have advised that I need to pay tax, penalties and interest amounting to £4500 based on the 50% share rather than the approx £100 based on the 1% share. This seems grossly unfair and disproportionate.
Is there any advice on how to proceed?
My options appear to be
1) Pay the £4500 and take it as a tough learning lesson.
2) Reply in the Disclosure with the tax, interest and penalties associated with my 1% share provoking HMRC to reject it and then seek to go to a tribunal.
I don't want to compound an already difficult issue. Has anyone any advice on my options or have been in a similar position I can learn from?
The Let Property Campaign advertises itself as a way to resolve unpaid tax and not be over penalised. This doesn't seem to be the case in practice.
Help.
I own a rental property with my wife which she inherited from her mother. I own 1% and she owns 99%. This was documented with the Land Registry in Feb 2019 and prior to its rental. We've diligently kept all the financial records.
Life has been extremely hectic (work, family, pandemic) and as my wife's share of the income was less than her tax free allowance for 2019/2020 and 2020/2021 and 2021/2022 I believed we did not have tax to pay or have an issue to resolve. However as she has now started to receive a DWP pension I realised that she would need to start paying tax for the tax year 2022/2023.
I looked at the HMRC site for guidance which revealed that we needed to submit a Form 17 to have the split of the ownership recognised by HMRC. I've submitted the form, with supporting evidence and requested that they back date it to Feb 2019 in-accordance with the Land Registry documents. However they ignored this and set the date as the submission date of March 2022. This means I have ta ax liability for 50% of the property income for every tax year 2019 through 2022 and as a 40% tax payer a large unexpected tax bill.
I've started and I'm in the process of making a Disclosure for my property tax income to HMRC under the Let Property Campaign. HMRC have advised that I need to pay tax, penalties and interest amounting to £4500 based on the 50% share rather than the approx £100 based on the 1% share. This seems grossly unfair and disproportionate.
Is there any advice on how to proceed?
My options appear to be
1) Pay the £4500 and take it as a tough learning lesson.
2) Reply in the Disclosure with the tax, interest and penalties associated with my 1% share provoking HMRC to reject it and then seek to go to a tribunal.
I don't want to compound an already difficult issue. Has anyone any advice on my options or have been in a similar position I can learn from?
The Let Property Campaign advertises itself as a way to resolve unpaid tax and not be over penalised. This doesn't seem to be the case in practice.
Help.
0
Comments
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Have you been declaring your share and paying the tax due on it?
This suggests you are going to fund it tricky to change HMRC's view
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9862
You may get more responses on the Cutting Tax board, there are some very knowledgeable folk on taxation of property income who reply on there.1 -
It is very clear in the documentation that the Form 17 submission cannot be done retrospectively and that until the Form 17 is correctly submitted income will be split 50:50 for joint spouses.The let property campaign is a campaign, not an amnesty. Tax due is still due, however penalties should be at the lower end of the scale if you are making an unprompted disclosure. They will be higher if prompted by HMRC.
Clearly option 1 I'm afraid.1 -
Many thanks for taking the time to comment on my post. I've posted on the Cutting Tax board as suggested. I take the point its a campaign not an amnesty. Not being able to back date Form 17 despite having evidence seems very restrictive. I'm guessing HMRC has a good reason.
Once again many thanks.0 -
It's too late now but when you fill in a tax return and have such a disjointed split in ownership, I'd always disclose on the tax return under any other information. That way HMRC have been told. You might still get penalties but they will always be on the lesser scale because you can demonstrate that you were not hiding anything.Anyway, do you have solicitor paperwork showing the transfer of 1% to you from your wife? If you can argue with evidence there was an unequal split from the moment she took ownership, you could try to argue down what is owed. Yes it should have been done correctly in the first place and I'd pay and then argue to stop interest being added.May you find your sister soon Helli.
Sleep well.1 -
No point in appealing against the Taxes Act being implemented.
https://www.legislation.gov.uk/ukpga/2007/3/section/837
0 -
TripleH said:"It's too late now but when you fill in a tax return and have such a disjointed split in ownership, I'd always disclose on the tax return under any other information. That way HMRC have been told. You might still get penalties but they will always be on the lesser scale because you can demonstrate that you were not hiding anything."
Not sure this is good advice - putting info in whitespace boxes on a tax return might help you wriggle out of some "Discovery" provisions later on, in many cases, but in this particular case Income Tax Act 2007 Section 837 is pretty narrowly defined:
"The individuals may make a joint declaration under this section ..." and
"The declaration has effect only if notice of it is given to an officer of Revenue and Customs(a)in such form and manner as the Commissioners for Her Majesty's Revenue and Customs may prescribe"
(my use of bold) HMRC prescribe Form 17.
I agree with Sheramber: asking for a review or appealing the tax here will almost certainly be a waste of OP's and HMRC's (public purse!) time.0 -
TripleH said:It's too late now but when you fill in a tax return and have such a disjointed split in ownership, I'd always disclose on the tax return under any other information. That way HMRC have been told. You might still get penalties but they will always be on the lesser scale because you can demonstrate that you were not hiding anything.Anyway, do you have solicitor paperwork showing the transfer of 1% to you from your wife? If you can argue with evidence there was an unequal split from the moment she took ownership, you could try to argue down what is owed. Yes it should have been done correctly in the first place and I'd pay and then argue to stop interest being added.0
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