In Mr Deepak Koshal Mrs Minu Koshal v HMRC TC02826 [2013], a couple held a property portfolio in joint names, however, the husband claimed that beneficial ownership of the property had been transferred to his wife, and so rental income was taxable on her alone. HMRC disagreed and raised an assessment on accountant Mr Koshal, levying penalties at 20% of tax lost.

Under sections 836 and 837 ITA 2007 (formerly s282A and B ICTA 1988) income from property held jointly by spouses (and civil partnerships) is taxed 50:50 unless there is evidence that neither has any beneficial entitlement to the property or an election is made using Form 17. The Koshal’s had made no such election. There was no evidence to show any transfer of beneficial ownership to the wife and the properties had been purchased using jointly owned case and loans from the husband, however she alone managed the property and collected rents. The tribunal ruled that the property income should be taxed 50:50.

How to prevent this problem occurring? There are three ways to avoid this type of situation arising, see Joint property: legal v beneficial ownership