Can I Use My Spouse’s Allowance to Cut Property Tax?

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain Can I use my spouse’s allowance to cut property tax in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.

As a chartered accountant running my own firm, this is one of the most common questions I am asked by landlords and property investors. It usually comes up when one spouse is paying higher rate tax on rental income while the other has little or no income. On the face of it, it feels obvious that there should be a way to use a spouse’s allowance to reduce the tax bill. Sometimes there is, sometimes there is not, and getting it wrong can create bigger problems than it solves.

In this article, I want to explain clearly and practically whether you can use your spouse’s allowance to cut property tax, what HMRC actually allow, what does not work, and the legitimate planning options that are available to married couples and civil partners. I will cover income tax, joint ownership, Form 17, the marriage allowance, transfers between spouses, and the common mistakes that trigger HMRC enquiries.

This is written exactly how I explain it to clients, in plain UK English, grounded in real world HMRC rules rather than myths or online shortcuts.

The short answer before we go deeper

Yes, in some circumstances you can use your spouse’s personal allowance and lower tax bands to reduce property tax. However, you cannot simply decide to move rental income to your spouse because it suits you. HMRC have very clear rules around ownership, income attribution, and evidence.

Most problems arise when people assume that being married automatically allows income to be split however they like. That is not how the tax system works.

Understanding what people mean by spouse’s allowance

Before going any further, it is important to clarify terminology.

When people talk about using a spouse’s allowance, they usually mean one of three things:

• Using the other spouse’s unused personal allowance

• Shifting rental income to the lower earning spouse

• Using the marriage allowance

Each of these works very differently, and confusing them is where mistakes begin.

The personal allowance and property income

Every individual has a personal allowance for income tax purposes, provided their income is below the taper threshold.

Rental income is taxed on the person who is treated as owning the property for tax purposes.

This means that if rental income belongs to your spouse, they can use their personal allowance and lower tax bands against that income.

The key question is not whose allowance you want to use. It is whose income it actually is under HMRC rules.

How HMRC decide who is taxed on rental income

HMRC do not tax rental income based on who receives the rent into their bank account or who manages the property.

They tax rental income based on beneficial ownership.

In simple terms, HMRC look at who owns the property and in what proportions.

If a property is owned by one spouse only, all the rental income is taxed on that spouse, regardless of who does the work or who pays the bills.

If a property is jointly owned, rental income is usually split between spouses.

The default rule for married couples and property income

This is one of the most misunderstood rules.

Where a property is jointly owned by a married couple or civil partners and they live together, HMRC automatically assume that rental income is split 50 50 for tax purposes.

This applies regardless of:

• Who paid the deposit

• Who pays the mortgage

• Who earns more

• Who manages the property

Unless specific steps are taken, HMRC will tax each spouse on 50 percent of the rental profit.

When the 50 50 rule is a problem

The 50 50 rule becomes an issue where:

• One spouse is a higher or additional rate taxpayer

• The other spouse has little or no income

• The ownership is not actually equal

In these cases, many couples want to shift more income to the lower earning spouse to use their allowance and lower tax rates.

That can be possible, but only if the ownership supports it.

Changing the split of rental income using Form 17

Where a property is jointly owned by spouses in unequal shares, you may be able to split the rental income in line with actual ownership rather than 50 50.

This is done using HMRC Form 17.

Form 17 allows married couples and civil partners to declare that income should be taxed in proportion to beneficial ownership.

However, this only works if all of the following are true:

• The property is jointly owned

• Ownership shares are unequal

• There is evidence of unequal beneficial ownership

• Form 17 is submitted within the deadline

If any of these are missing, HMRC will reject the split.

What counts as unequal beneficial ownership

Unequal beneficial ownership must be real and provable.

This usually requires:

• A declaration of trust or deed of trust

• Clear documentation showing ownership percentages

• Evidence that the arrangement is genuine

You cannot simply agree between yourselves to split income differently for tax purposes.

HMRC will look at legal and beneficial ownership, not intentions.

Common ownership splits that work

In practice, common arrangements include:

• 99 percent ownership to one spouse and 1 percent to the other

• 70 30 or 80 20 splits

• Ownership reflecting contributions to purchase

Where structured properly, this can move most of the rental income to the lower earning spouse, allowing their personal allowance and lower tax bands to be used.

The importance of deadlines for Form 17

Form 17 is time sensitive.

It must be submitted to HMRC within 60 days of the declaration of trust being signed.

If you miss the deadline, HMRC will ignore the form and continue taxing income 50 50.

This is one of the most common and costly mistakes I see.

Transferring property between spouses

Another option is transferring ownership of property between spouses.

Transfers between spouses who are living together are generally:

• Free of capital gains tax

• Free of stamp duty land tax in many cases

This makes them a powerful planning tool.

However, the transfer must be genuine, and there may be mortgage and legal implications.

Using a transfer to shift rental income

If one spouse owns a property outright, transferring a share to the other spouse can allow rental income to be split.

For example:

• Property originally owned 100 percent by one spouse

• Transfer 50 percent to the other spouse

• Rental income then split 50 50 by default

This allows the lower earning spouse to use their allowance against part of the income.

Mortgage considerations when transferring property

Transfers are not purely a tax decision.

If the property has a mortgage:

• Lender consent may be required

• The spouse receiving the share may take on liability

• There may be stamp duty implications if debt is transferred

This is an area where tax advice and legal advice need to work together.

Stamp duty land tax and spouse transfers

Transfers between spouses are usually exempt from stamp duty if there is no consideration.

However, consideration includes taking on mortgage debt.

If one spouse takes responsibility for part of the mortgage, stamp duty may apply.

This often catches people out.

Can I just pay the rent into my spouse’s bank account

This is a very common question.

No, paying rent into your spouse’s bank account does not change who is taxed on the income.

HMRC look at ownership, not cash flow.

I regularly see HMRC challenge arrangements where rent is diverted without ownership being changed.

What about the marriage allowance

The marriage allowance is often misunderstood in property tax planning.

It allows one spouse to transfer a small portion of their personal allowance to the other spouse.

However, it only applies where:

• One spouse has income below the personal allowance

• The other spouse is a basic rate taxpayer

It does not apply if the recipient spouse is a higher or additional rate taxpayer.

The value of the marriage allowance is relatively modest and it does not shift rental income itself.

Marriage allowance versus income shifting

Marriage allowance:

• Transfers a small tax allowance

• Does not change ownership

• Does not change who is taxed on rental income

Income shifting through ownership:

• Changes who is taxed on the income

• Can have a much larger impact

• Requires proper legal and tax steps

The two are often confused but work very differently.

Furnished holiday lets and spouse income

Furnished holiday lets have different rules.

Income from furnished holiday lets is treated as a trade for some tax purposes.

This allows more flexibility in allocating profits between spouses where both are genuinely involved in the business.

However, HMRC still expect commercial reality and proper documentation.

Limited companies and spouse involvement

Some landlords consider using a limited company to shift income between spouses.

This can allow:

• Dividends to be paid to both spouses

• Use of both personal allowances

• More flexible income planning

However, companies bring:

• Corporation tax

• Additional admin

• Different mortgage products

• Potential double taxation

This is not a simple fix and needs careful modelling.

Common mistakes I see landlords make

In practice, the same errors come up repeatedly.

These include:

• Assuming marriage allows free income splitting

• Using bank accounts to divert income

• Filing Form 17 without proper ownership evidence

• Missing Form 17 deadlines

• Ignoring mortgage and stamp duty issues

• Relying on informal advice

These mistakes often lead to HMRC enquiries and backdated tax bills.

How HMRC challenge spouse arrangements

HMRC often look at:

• Land Registry ownership

• Declarations of trust

• Bank statements

• Mortgage agreements

• Consistency across tax returns

If arrangements do not align, HMRC will usually reallocate income and charge interest and penalties.

When spouse planning is most effective

In my experience, spouse planning works best where:

• It is done early

• Ownership reflects reality

• Documentation is clear

• Deadlines are met

• The lower earning spouse genuinely benefits

Trying to retrofit arrangements after income has already been taxed is much harder.

When it is not worth doing

Sometimes the cost and complexity outweigh the benefit.

This is often the case where:

• Rental profits are modest

• Both spouses are higher rate taxpayers

• Properties are heavily mortgaged

• Legal costs are high relative to tax savings

Each case needs proper calculation.

Why professional advice matters here

Spouse based property tax planning sits at the intersection of:

• Income tax

• Capital gains tax

• Stamp duty land tax

• Property law

• Mortgage law

Getting one part wrong can undo the entire plan.

In my professional experience, the cost of advice is usually far lower than the cost of fixing mistakes later.

Final thoughts from real world experience

So, can you use your spouse’s allowance to cut property tax. Yes, in the right circumstances, and when it is done properly. But it is not automatic, and it is not something you can achieve by simply deciding to do it.

The key principle is ownership. Tax follows ownership, not effort, not bank accounts, and not marital status alone. Where ownership can be structured legitimately, significant tax savings are often possible. Where it cannot, trying to force the issue usually leads to HMRC intervention.

If there is one takeaway, it is this. Spouse planning works best when it is proactive, documented, and aligned with the law. When done correctly, it can reduce tax significantly and sustainably. When done badly, it creates risk that far outweighs the benefit.

You may also find our guidance on How can I offset property losses against other income and How can a property accountant help reduce my overall tax bill useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.