Usually not. Owning a let property together does not of itself create a partnership, and HMRC’s starting point is that joint letting falls short of one. A partnership exists only where the co owners carry on a business in common with a view of profit, and when it does, it changes how profits can be split between spouses, ring fences losses, brings in a partnership return and shapes the incorporation relief and Stamp Duty Land Tax position on a move into a company.

What does the law say makes a partnership?

Section 1(1) of the Partnership Act 1890 defines a partnership as the relation which subsists between persons carrying on a business in common with a view of profit. Section 2(1) then deals directly with co ownership: joint tenancy, tenancy in common, joint property or part ownership does not of itself create a partnership as to anything so held, whether or not the owners share any profits made from using it. Section 2(2) adds that sharing gross returns does not of itself create one either.

HMRC’s Partnership Manual at PM120100 notes that business is a wide term that can include making investments, but that simply making an investment is not enough: there has to be sufficient organisation and continuity. PM133000 lists the evidence HMRC weighs. No single factor decides it. A deed saying there is, or is not, a partnership is not conclusive; sharing net profits is evidence of partnership but not proof; and an agreement to make good each other’s losses is a stronger indicator. The courts have found partnerships despite a written denial, including in Fenston v Johnstone, which concerned a joint property development.

How the title is held, as joint tenants or tenants in common, decides who owns what. It does not decide whether there is a partnership.

Why is joint letting usually not a partnership?

PM131800 says the letting of jointly owned property does not normally constitute a partnership because most cases fall short of the degree of business organisation needed, and that providing significant additional services for payment may indicate that organisation. The Property Income Manual at PIM1035 makes the same point: joint letting does not of itself make the activity a partnership, and an individual does not become a partner just because they start receiving property income jointly with someone else.

PIM1035 gives the two situations where a partnership property business does arise:

  • a trading or professional partnership that also lets some of its buildings; and
  • a partnership running an investment business, not amounting to a trade, that includes or consists of letting property.

So two friends who buy a flat together and use an agent are almost certainly co owners. A family that runs a large portfolio from an office, with staff, shared bank accounts, a written agreement and decisions taken jointly about buying and selling, may well be a partnership. The general position on splitting income without a partnership is covered in jointly owned rental property.

How are profits split with and without a partnership?

Without a partnership, PIM1035 says each owner’s share normally follows their share of the property, but unmarried co owners can agree a different division. The share taxed must be the share actually agreed, the owner needs evidence of it, and it should stay consistent over time unless circumstances clearly change.

Spouses and civil partners living together are different. Section 836 of the Income Tax Act 2007 treats them as entitled to income from jointly held property in equal shares unless an exception applies. The best known is a declaration on Form 17 under section 837, which only works if their interests in the income and in the property correspond (Exception B). Exception C is a partnership: if the couple’s letting is genuinely carried on in partnership, the income is divided under the partnership agreement instead.

Inside a partnership, PM137000 confirms that partners are free to agree profit sharing ratios, which need not follow capital contributions or effort, but the allocation for a period cannot be changed retrospectively once that period has ended (Bucks v Bowers).

What changes for losses, allowances and returns?

  • Losses. A partnership property business is a separate business from each partner’s own lettings. PIM1035 says a partnership loss cannot be set against a personal property profit or the other way round, and each partnership is kept separate from any other.
  • Allowances. HMRC’s guidance on the property allowance says it cannot be used in a year in which you have property income from a partnership where you or someone connected with you is a partner. Rent a room relief does not apply to partnerships (PIM4001).
  • Returns. The nominated partner registers the partnership and files the partnership return, and every partner still files a personal return. GOV.UK says registration is due by 5 October in the business’s second tax year, and that if the partnership return is late each partner has to pay a penalty. See the partnership tax return.
  • Making Tax Digital. A share of profit from a partnership does not count towards an individual’s qualifying income for Making Tax Digital for Income Tax, whereas a co owner’s share of joint rental income does. HMRC says partnerships will be brought in later on a timeline still to be announced.

Why does it make a difference to incorporation relief?

Incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 needs a business, transferred as a going concern with all its assets other than cash, in exchange for shares (CG65710). For lettings the question is whether there is a business at all. CG65715 sets out the factors from Ramsay v HMRC [2013] UKUT 0226 (TCC) and says HMRC should accept that relief is available where an individual spends 20 hours or more a week personally on activities indicative of a business, with cases below that judged on the facts.

A partnership does not by itself pass that test. A genuine partnership must be carrying on a business, but the business has to exist in fact; a deed signed shortly before incorporation does not create one. Where there is a partnership, CG65700 says relief is available to the individual partners, computed separately for each, but not where the partnership incorporates into a company that is already a member. For transfers from 6 April 2026 the relief must be claimed, and CG65735 sets the deadline as the first anniversary of the 31 January after the tax year of transfer. More detail is in incorporating a property portfolio and incorporation relief.

And for Stamp Duty Land Tax?

Schedule 15 to the Finance Act 2003 has special rules for transfers into and out of partnerships. Under paragraph 18, where property passes from a partnership to a partner or a person connected with a partner, such as a company they control, the charge is worked out by reference to market value reduced by the sum of the lower proportions (SDLTM33710). That can reduce the charge on incorporation well below a straight market value charge.

HMRC’s Stamp Duty Land Tax Manual at SDLTM33110 draws the line firmly: a partnership exists only if the entity carries on a business; simply holding investment property jointly might not be a business; and where there is no business the partnership rules do not apply even if the parties are bound by a partnership deed. The rules are explained in SDLT partnership rules.

How might this look in practice?

Illustration only. Two sisters own two buy to let flats as tenants in common in equal shares. An agent finds tenants and handles repairs, and the sisters check the statements once a month. This is co ownership, not a partnership. Each puts half the profit on her own property pages, it is combined with any other lettings she has, and each can use her own losses against her other UK property profits.

Ten years later they own 14 properties, run them from an office, employ a maintenance worker, operate a joint business account, meet weekly to decide purchases and sales, and have a written agreement giving a 60:40 profit share because one sister works full time in the business. On those facts a partnership is likely. A partnership return is needed, losses stay inside the partnership, and on a later transfer to a company each sister makes her own incorporation relief claim.

What mistakes come up?

  • Signing a partnership deed just before incorporating and assuming that, by itself, secures the partnership treatment for SDLT or a business for incorporation relief.
  • Filing a partnership return for a simple joint letting, which then has to be unwound.
  • Spouses picking a profit split without either a valid Form 17 declaration or a genuine partnership.
  • Changing a partnership profit share after the period has ended.
  • Claiming the property allowance against a partnership share, or setting a partnership loss against personal rental profits.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.