If the legal title of rental property is in your joint name, then HMRC will normally treat the rental income as if it belonged to you equally and tax you both accordingly.
If you want to change the way in which rental income is allocated between you, you will both need to sign what’s called a ‘declaration of trust’ in respect of each property.
A declaration of trust is a simple form of trust deed, which states that although the legal title is owned by one or both of you, the beneficial interests (i.e. the right to receive income) are held by the party wishing to declare the income on their tax return. Therefore, whilst HM Land Registry might show the legal title to the property as being in your joint name, the declaration of trust sits behind the legal title, providing evidence of the way in which the actual benefit is apportioned, and rental income paid between you.
The declaration of trust can be amended later in the event of a change in circumstances, so that the beneficial interests are again held equally, or otherwise. This might also be relevant if you later want to sell the property and use both your annual allowances for capital gains tax purposes. Provided you are married, or in civil partnership, a change to the beneficial interests in property will be treated as an exempt transfer for inheritance tax purposes and at no gain/no loss for capital gains tax, so no tax liability will arise. However, any change only takes effect from the date of the declaration of trust and cannot be written back to the start of the tax year in question. It is, therefore, important to complete the declaration of trust before 6 April in any given tax year if you want the change to apply to the full year’s rental income.
Where the legal title to the property is held in your joint name, but not if the title is in the sole name of one of you, you must also complete HMRC Form 17 (Declaration of beneficial interests in joint property and income). Form 17, together with a certified copy of the declaration of trust, must be submitted to HMRC within 60 days of the date of the declaration of trust. Failure to do so will mean that HMRC will continue to regard the rental income as having been received by you jointly and will tax it accordingly. If there is a subsequent change of beneficial interests and a redistribution of income between you, then a further Form 17 and a certified copy of any new declaration of trust must again be submitted to HMRC within 60 days of the change.