Property investors should watch out for a new tax trap inadvertently set up by solicitors and the Land Registry.
Lawyers are encouraging all joint property buyers to sign an express declaration of trust detailing their percentage ownership.
The form is then filed with the Land Registry as evidence if any dispute about joint ownership arises should the couple’s relationship break down.
The move is the result of two recent court cases involving unmarried couples arguing over money and property when their relationships ended.
The Law Society and Land Registry want solicitors to encourage buyers to sign the declaration.
However, property investors should know that the Land Registry database is linked to HM Revenue & Customs and the forms could end up triggering tax inquiries.
Many couples jointly own investment property and split the profits 50:50 – which poses no problem for taxpayers.
However, tenants-in-common who switch percentage shareholdings to cut tax for a higher rate taxpayer in the relationship could face issues with HMRC.
If they mismatch taxable rental profits or losses with the percentage listed on the form, they could face fines and surcharges for filing inaccurate tax returns.
Higher rate taxpayers should also realise that if they sign more than 50% of ownership to a spouse or partner, they give up all financial rights to any income generated by that share...
of the property – and any funds arising from the sale or transfer.
The Law Society’s conveyancing and land law committee chairman Jonathan Smithers said: “The note will direct solicitors to the practical implications of statements made in recent cases so that their clients can continue to receive the best advice possible.”
In both court cases – Stack v Dowden  UKHL 17 and Jones v Kernott  UKSC 53 – joint owners disagreed on the details of property ownership.
Signing the declaration is not compulsory – but failing to file the form could also spark an inquiry over joint ownership of an investment property from the tax man.©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law; always seek professional advice. Legislation changes, so check dates on these articles. If you have questions go to the LandlordZONE® Forums