If you and your spouse or civil partner jointly own a property that earns rental income, setting up a Declaration of Trust could save you thousands in tax and help avoid legal complications down the line.
This legal document sets out exactly who owns what share of the property and how the income (like rent) or profits from a future sale should be divided. It’s especially helpful when one partner pays a higher rate of tax and the other is on a lower rate.
The tax-saving benefits discussed here, especially for income tax purposes, only apply if you are:
• Married or in a civil partnership, and
• Both are legal owners of the property (i.e., named on the title deeds).
If you're not married or civil partners, or only one of you legally owns the property, the tax rules are different, and you should seek advice before making any changes.
HMRC normally assumes that married couples or civil partners who jointly own a property split any rental income 50/50, even if one pays much more tax than the other. This default position can increase your overall tax bill.
Example:
• The property earns £20,000 a year in rental profit.
• You’re a higher-rate taxpayer (40%), and your spouse is a basic-rate taxpayer (20%).
• Without a Declaration of Trust, you each pay tax on £10,000, meaning more tax overall.
But if a Declaration of Trust is in place and states your spouse owns say 90% of the beneficial interest, and you only 10%, you can legally shift more income to the lower-taxed partner.
To make this work, you must also submit Form 17 to HMRC, along with a copy of the signed Declaration of Trust. This tells HMRC you want to be taxed based on your actual ownership shares, not the assumed 50/50.
Capital Gains Tax is due when you sell a property for more than you paid for it. The gain is usually split based on your beneficial ownership.
With proper planning, a Declaration of Trust can reduce CGT in two ways:
1. Double Use of the Annual CGT allowance
Each of you has a CGT-free amount (£3,000 as of 2025/26). If you both own part of the gain, you can combine your allowances, reducing the total tax due.
2. Lower Tax Rates for Basic Rate Taxpayers
CGT on residential property is 18% for basic rate taxpayers and 28% for higher rate taxpayers. So, shifting more of the gain to the lower-rate spouse can reduce the overall tax burden.
Trying to create a Declaration of Trust yourself can backfire, especially if it’s not written clearly or doesn’t meet legal and tax requirements. Common problems include:
• The document being unenforceable if there’s a disagreement later.
• HMRC rejecting your Form 17, meaning you’re taxed 50/50 anyway.
• Unexpected tax charges, like Stamp Duty or CGT on changes to ownership.
A solicitor will:
• Make sure the document is legally valid and correctly executed.
• Ensure it meets HMRC’s rules for tax purposes.
• Protect your interests in case of disputes, divorce, or death.
• Work alongside your accountant to maximise tax efficiency.
If you and your spouse or civil partner jointly own a rental property, and one of you pays more tax than the other, a Declaration of Trust combined with Form 17 can:
• Lower your income and capital gains tax bills
• Protect your financial contributions and future share
• Prevent disputes or confusion later on
But these benefits only apply when the property is jointly owned, and you’re married or in a civil partnership. To ensure everything is done correctly and legally, it’s well worth getting advice from a qualified solicitor. The right setup now could save you a small fortune in the long run.
Our experienced legal team can guide you through the process and draft a tailored Declaration of Trust that meets both legal and tax requirements.
Email: privateclient@lawcomm.co.uk
Call: 01489 864 173
Let us help you protect your interests and make your property work smarter for your finances.
