How married couples can take advantage of the ‘50%:50%’ rental property rule
21st November 2025
Posted in Articles by Forbes Dawson
It is fairly common for one spouse (or civil partner) to want to share the taxation of rental income with their partner. Often this will be because one partner has a higher income than the other.
Example
Wilma Flintstone is a high-flying banker in London earning £800,000 while her husband Fred spends his time watching daytime television and drinking beer in their pad in St John’s Wood. Wilma rents out three properties worth roughly £1m each (£3m in total) which each have £500,000 of mortgage attached to them. These properties yield £150,000 of annual rental income and have interest costs of £67,500 and other expenses of £12,500, giving rise to a profit of £70,000. Wilma is keen to shift some income into Fred’s hands because not only is she in a 45% tax band, but she is only getting income tax relief on the finance costs at 20%.
Although Wilma can transfer property to Fred free from capital gains tax (no gain, no loss treatment between spouses) there is still the question of stamp duty land tax (SDLT). Typically, Fred will need to take over the mortgage in any transaction and if, for example, he was to acquire 50% of the property portfolio then he would take on 50% of the mortgage of £750,000. This would be treated as consideration and so would be subject to SDLT of £27,500 (£125,000 @ 0%, £125,000 @ 2% and £500,000 @ 5%). Fortunately, the 5% SDLT surcharge cannot apply on transactions between spouses who are living together (since 2017).
A key point here is that a married couple is treated as a default position as sharing property income on a 50%:50% basis on jointly held property. This means that Wilma could transfer 1% of the legal and beneficial ownership to Fred and this will allow Fred to include £35,000 of rental profit in his own tax return without triggering any SDLT liability. Although the tax rules treat Fred as having taken on 50% of the mortgage liability (this is implicit in the fact that he gets a deduction for the interest) as he has not actually done this, then the SDLT rules above do not apply.
Form 17
In the above example, it is likely that Wilma and Fred want even more income to be taxed on Fred. If this is the case then Fred would need to have some legal interest and a beneficial ownership of more than 50% in the property and this would have to be legally evidenced (for example, through a declaration of trust which gives him 80% beneficial ownership, say). Although it may be possible for Wilma to maintain responsibility of the mortgage in this scenario (and so not lumber Fred with an SDLT charge when he takes it over) the position is not clear cut, and Fred may be seen to have substantially (ipso facto) taken on the mortgage and therefore be liable for SDLT.
Forbes Dawson view
It is sometimes assumed that a spouse or civil partner must take over a mortgage when a mortgaged property is transferred to them. For values up to assumed mortgages of up to £125,000 this is a moot point because no SDLT would be payable in any event. When the figures become higher, then it may be possible to side-step the issue by transferring only a small portion of the property to the spouse or civil partner. While this will allow them to share the income for income tax purposes, it will not have a significant SDLT impact. When tax allocations of more than 50% are desired then the SDLT position becomes less certain, but it may be possible to structure things so that even then no SDLT is payable.
