Has property been given away?
Bare Trust, Beneficial Ownership, Release or Assumption of Debt
“I have been asked to act in a transfer of equity from Dad to Son.
Dad and son own one house with son owning 50%. This is where our client used to live.
Dad purchased a property in 2002 on a BTL basis in dad’s sole name.
Son moved in in May 2013 from that point he paid all the mortgage and all outgoings. The property had a value at that time of around £425,000.00 and an existing mortgage of £225k on an interest only basis.
It was the intention that in 2013 the property be gifted but no formal transfer or declaration was entered into. So far as they were concerned dad held property on trust for son from then onwards.
I have now been asked to do transfer from dad to son.
I have mentioned that dad will need to pay CGT and he needs to seek advice from an accountant.
Current value around £600k
My concerns are
1. In view that son has an interest in another property SDLT would be payable at 3% if the HMRC do not accept that there was a change in the beneficial ownership in 2013 and the CGT bill for dad will be higher.
2. If the HMRC did accept that there was a change of ownership due to the mortgage I understand that this should have triggered a need to submit an SDLT for SDLT to be payable at £2250.00 so this would also attract interest and penalties,
May I ask what Ann’s view on the transaction is? Does she consider that the HMRC would treat there to be a change of ownership on the acts alone (I understand that a declaration of trust involving land although does not need to be a deed needs to be in writing)? If so what is the interest and penalties likely to amount to
If the HMRC would not accept that there was a change in the beneficial ownership I assume SDLT is also payable at the 3% based upon his ownership in the other property (value 1.6 million so above the 40k bracket!)
He hasn’t sold any previous main residence.”
Source: BLG Member
As I understand it declaring a trust over the beneficial interest is not something that the mortgagee would need to have consented to. It would not affect their title and the declaration would only apply to the balance of the proceeds after the mortgage is paid off.
If a declaration of trust purported to transfer the beneficial interest but subject to the burden of the mortgage that would have required the consent of the mortgagee to be effective against the mortgagee.
So if there was a change in the beneficial ownership in 2013 without the mortgagee’s consent there will have been no consideration as dad will not have been released from the mortgage nor will the son have assumed it and so it will not have been a chargeable transaction.
HMRC would require evidence to support the contention that dad has held the property on trust for the son since 2013 and from what you have said there is not much apart from the, I assume, undocumented intention to make a gift of it.
If the trust argument is not accepted (which I think is likely) you are correct that the 3% surcharge will apply provided that there is chargeable consideration in the form of release or assumption of debt or otherwise.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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