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Jointly-Owned Let Property – Is There a Partnership?

A property may be owned by more than one person. Where that property is let out, the way in which the letting income is taxed will depend on whether or not there is a partnership. The simple act of owning property together and letting it out does not in itself establish a partnership.

How then does one decide whether there is a partnership and what are the implications for the tax treatment of any rental income?

Is there a partnership?

Whether or not a particular arrangement constitutes a partnership will depend on the facts in each case. A partnership is defined in the Partnership Act 1890 as a relationship that subsists between persons carrying on a business in common with a view to profits. Therefore, there needs to be some degree of commercial activity and intent to make a profit. HMRC make the distinction between a group of joint owners who simply let the property that they jointly own, and a more business-like arrangement whereby in addition to letting the property, substantial services are also provided in return for an annual fee.

The profit-seeking motive distinguishes partnerships from arrangements to share costs. The sharing of costs alone does not create a partnership. For a partnership to exist there must also be a partnership agreement. This can be oral or in writing. The agreement must be implemented for the partnership relationship to exist.

In most cases, where a single property is owned jointly and that property is let out, there will not be a partnership. The majority of cases will fall short of the degree of business organisation needed to constitute a partnership. For a partnership to exist there must be a similar degree of business organisation as in an ordinary commercial business. By contrast, where a partnership already exists and income is derived from letting property belonging to the partnership, HMRC will generally treat the letting as part of the partnership business.

Tax implications – no partnership

Where a person receives income from property in the UK, that income is taxed as part of the profits of their property rental business.

In a straightforward case where two people own a property jointly and the property is let out, the profits or losses attributed to each co-owner will normally be in the same ratio as their share in the property.


Alice and Lucy invest in a flat together. Alice owns 60% of the property and Lucy the remaining 40%. The property is let out and in the tax year in question rental receipts are £8,400 and allowable expenses £4,600, resulting in a profit of £3,800. The profit is shared as follows:

Alice (60%) 2,280
Lucy (40%) 1,520

However joint owners can agree a different allocation of profits and losses. In this situation, the share of profits and losses will not mirror actual ownership of the property. The owners must agree how profits and losses are to be shared and the allocation for tax purposes must mirror the agreement.


Assume the facts as in the example above but Alice and Lucy agree to share profits and losses from letting the profit out equally. In the tax year in question, rather than profits and losses being shared in line with actual and ownership, for tax purposes both Lucy and Alice will be treated as having property income of £1,900 each.

An exception to this general rule occurs when property is owned by a spouses or civil partners. Where this is the case income from jointly held property is treated as if it belongs to the parties in equal shares and each party is taxed on half the income, regardless of the actual ownership. However, if the property is actually owned in unequal shares, the parties are entitled to income arising in proportion to those shares and they want to be taxed on that basis, they can complete a declaration of beneficial interests in joint property and income (Form 17: see www.hmrc.gov.uk/forms/form17.pdf). Where the property is held in unequal shares, the extent to which such a declaration is beneficial will depend on the marginal rates of tax paid by each spouse or civil partner. As a general rule a declaration will be worthwhile where the party with the largest share in the property has the lowest marginal rate of tax.


Helen and Simon are married and own a property which they let out. Helen owns 75% of the property and is entitled to 75% of the income and Simon owns the remaining 25% and is entitled to the remaining 25% of the income. Helen is a non-taxpayer and Simon pays tax at 40%. Assuming the profit from letting the property was £6,000, in the absence of a declaration, each would be taxed on £3,000. As this is below Helen’s personal allowance, she would pay no tax. Simon, however, would pay tax at 40%. The total tax bill would therefore be £1,200.

However, if the couple were to make a declaration of beneficial interest in the jointly-owned property, each would be taxed in accordance with their actual shares, such that Helen would be taxed on 75% of the income (£4,500) and Simon on 25% (£1,500). Helen would still pay no tax as her share of the rental income is below her personal allowance and Simon would pay tax of £600. By making the declaration, they have jointly saved £600 in tax.

Tax implications – partnership

The situation is slightly different where there is a partnership. This may arise where the co-owners are trading or are in a professional partnership, which also lets out some of its land and buildings, or where they are in a partnership which operates as an investment business comprising or including the letting of property. However, special rules allow a partnership to treat income from letting surplus business accommodation as part of their trading profits in certain circumstances. These are explained in HMRC’s Business Income Manual (see www.hmrc.gov.uk/manuals/bimmanual/BIM41015.htm).

In this situation, there is a partnership rental business. It is treated as separate from any rental business carried on by the partners on their own account. This distinction is important as the profits and losses of one rental business cannot be offset against the profits and losses of another property rental business. Consequently, the partner’s share of profits from the partnership rental business cannot be amalgamated with the profits or losses from the personal rental business. Likewise, if the partner is a member of more than one partnership, each is dealt with as a separate and distinct property rental business.


Matthew, Gill and Emily jointly own property which they let out on a commercial basis. They provide management services to tenants, for which they charge a separate fee. The letting of property is a commercial operation run with a view to profit. There is a partnership and consequently the profits and losses form are taxed as a partnership property rental business, with partners being taxed on their share as allocated in accordance with the partnership agreement.

Gill also has a separate property which she inherited from her mother and which she lets out. The profits are taxed as her personal property rental business. She cannot offset any losses from this property against any profits from her share of the partnership property rental business and vice versa.

Practical Tip :

Consider whether or not a partnership is desirable up front and take the necessary steps to ensure the actual arrangements provide the intended result.

Sarah Bradford

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