Making wife the beneficiary owner of the property

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    Making wife the beneficiary owner of the property

    This question has been asked a few times on the forum but it doesn't match my exact circumstances hence again:

    I am the sole legal owner of the property. The property is mortgaged in my name along with a 20% help to buy equity. Due to unavoidable circumstances, I have to move out of the country with my wife for a couple of years and have convinced Help to Buy (HCA) to allow me to rent the property while I am away.


    I am a high rate tax payer (40%), and my wife doesn't work so she has all her allowance available (and not a great credit history which is why she isn't a join owner). I was hoping to make my wife 100% beneficiary of the rental income.

    - Is that possible while I stay the legal owner?
    - If yes, do I need to get a deed of trust prepared by the solicitor?
    - Does that need to be filed at the Land registry?
    - What does HMRC needs to know? Form17?
    - Do my mortgage provider + Help to Buy provider need to be
    concerned/informed? and will it affect the remortgaging process in any way?

    Any help will be much appreciated

    #2
    I think that what you're trying to do isn't going to be possible (I could be wrong, but you'd need a complex series of things to go the right way).

    Starting with the biggest obstacle, you can't change the beneficial ownership without the consent of the mortgage lender and Help to Buy.
    For both of them, the effect is that they lose some of the security on the asset you have secured their loan on.
    So it is in neither of their interests to allow it.

    You would probably have to involve your wife in the mortgage (I think the obstacle with Help to Buy would remain anyway).
    That would allow you to transfer part ownership of the property to your wife, which would allow you to change the beneficial ownership ration for tax purposes using a trust.

    As an overseas taxpayer, your tenant or agent should be paying basic rate tax to HMRC bi-annually (and the same would be true for your wife if they become involved in the property business).
    Which would mean making the annual tax return(s) becomes more complex.
    The additional cost and complexity would mean that the tax benefit would have to be large to make it worthwhile.

    Although, as I say, I think you'll find the first hurdle insurmountable.

    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      As far as I know, the profits should be taxed as a proportion of ownership. usually this is 50/50 unless you own the property (or get a solicitor to change the title) to being tenants in common and for example changing the ownership to 95/5. Then your wife is legally entitled to pay tax on the 95% of profits she gets. If its mortgaged then I *think* as long as you maintain a proportion of the property this may be ok... could be wrong tho, best ask a conveyancer.

      Comment


        #4
        There's no need to change the ownership to tenants in common to vary joint tenancy ownership from the presumed 50:50.
        You would normally use a deed of trust (so a) you can change the percentages if it suits because b) you probably want to end the variation when you sell the property.)

        And, for the avoidance of doubt, the tax is actually on income not profits - which doesn't make a lot of practical difference for most basic rate taxpayers, but is important if you have a mortgage (particularly if you are higher rate taxpayer or close to being one).
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Tenants in common is a trust. Creating a deed of trust would make the arrangements tenants in common.

          Comment


            #6
            The traditional deed of trust might create a beneficial tenancy in common.
            But the deed can be applied to change the percentages of an existing tenancy in common.

            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              That's because there is an implied condition on the trust, which gives 50:50. The deed makes the split explicit. The suggestion here was that you could turn a joint tenancy into one that looked like tenants in common, but wasn't, by a deed of trust.

              Comment


                #8
                I'm confused.

                A joint tenancy (between 2 people) is treated as a beneficial ownership split of 50:50 for tax purposes.
                In title, both parties each own the entire property.

                To overcome that treatment, there has to be an external instrument - the deed of trust, which establishes the desired split in beneficial ownership.
                That deed establishes a real change in beneficial ownership (which is where the tax position arises amongst other things) but doesn't affect the title ownership.

                Where the title is held as tenants in common, there is a documented split (hopefully) of the portion that each party owns.
                If it isn't specifically recorded, again, it's presumed to be an actual 50:50 split.

                It is possible to change the actual split to a different beneficial split, again with a deed of trust.




                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  You can't change the beneficial ownership as long as you are the sole owner. You will need to add your wife to the mortgage and change the ownership with the Land Registry. I'm not familiar with the Help To Buy scheme so can't say whether they would allow a change of ownership. Transfer of ownership could trigger stamp duty also.

                  Comment


                    #10
                    Originally posted by Kape65 View Post
                    You can't change the beneficial ownership as long as you are the sole owner. You will need to add your wife to the mortgage and change the ownership with the Land Registry. I'm not familiar with the Help To Buy scheme so can't say whether they would allow a change of ownership. Transfer of ownership could trigger stamp duty also.
                    Not true. Owners do not have to be registered holders of the legal title at all. Children for example can be beneficial owners and are not entitled to be trustees. The individual named on the title might simply be a trustee of a bare trust.

                    Likewise a property can be owned by 20 people, but there can be only 4 trustees.

                    Comment


                      #11
                      So he can change the beneficial ownership of the property in favour of his wife without her being on the title? Effectively gifting her the house completely free from SDLT. What rights would she have to dispose of the property?

                      Comment


                        #12
                        Well my answer was in principle - that beneficial owners do not have to be on the legal title.

                        However - the mortgage complicates things. (there is no SDLT on an unmortgaged gift).
                        The marriage somewhat complicates things - there would need to be an R17 declaration which does NOT require that both spouses be on the legal title (in fact if both spouses are on the legal title as joint tenants -- not tenants in common - there can be no unequal split).

                        A beneficial owner owns the property and if it is sold they get the proceeds. However the trustee can fail to cooperate with a sale - so spouse may have to take court action to force a sale.

                        Comment


                          #13
                          There are a lot of misconceptions here. That is not surprising as the relevant law involves some tricky concepts. Many lawyers, including conveyancers, have had successful careers without any negligence claims without ever having fully understood how trusts work in relation to land. Without going into the whole thing, the following are all the case:

                          · You can change the beneficial ownership without the consent of any mortgage lender. Changing the beneficial ownership does not affect the security of a lender.

                          · If you are the sole legal and beneficial owner of a property you can declare a trust. Contrary to the belief of many, you do not need two trustees for there to be a trust.

                          · If two people own property as beneficial joint tenants, whilst for tax the ownership may be treated as 50:50, under land law the position is that both own the whole.

                          · If a joint tenancy with two owners is severed the owners become beneficial tenants-in-common in equal shares. However, each share is "undivided", that is until the land is sold you cannot say that a particular part belongs to anyone. It is only when the land is sold that the shares are divided, that is each owner entitled to a share in the proceeds of sale.

                          · If the legal onwnership is vested in two people there is a trust. If a benefical owner wishes to transfer his share or part of it to another there is no need to declare a new trust - he just assigns his share or part of it. He can do that without any change to the legal ownership.

                          · If you transfer a share in land it is for tax purposes the same as transferring any other asset even if the legal ownership does not change.

                          . It is possible, rather than transferring an interest in land, to assign the income from it for a limited period. However, I did read somewhere that HMRC do not accept that.

                          It is always wise when considering transferring property for tax purpose to consult a tax expert because the exercise is never self-contained, but needs to be considered in the light of the parties' circumstances and what they want to achieve. The fact that the parties are moving abroad brings in an additional complication making expert advice even more recommended.

                          Comment


                            #14
                            Thanks lawcruncher. So lets get to something that has always bothered me and which has appeared in various threads over the years:

                            Let's suppose A and B are on the legal title - as tenants in common in equal share

                            A in turn has a bare trust which assigns the beneficial interest in his total share to C and D.

                            There is no reason C & D have to be on the legal title (for tax, inheritance purposes). Correct? I understand that to be the case but is it documented anywhere? - in fact there are reasons they might not be able to be on the title (under age, too many trustees already, B refuses to cooperate to permit A to sell his beneficial interest and change the title)

                            A submits a self assessment showing his capital gain at the point of transfer, and C and D from them on submit self assessments showing their income.

                            The snags as I see it --

                            a) blind trusts cannot be registered with HMRC (?) - therefore when the property comes to be sold or a party dies there could be a debate with HMRC about tax. -- is there some way a restriction can be entered by A alone ? Any other way to formally document this beyond the "private" trust deed?

                            b) If A dies, B becomes the sole trustee - and can sell the property without recourse to C or D, and pocket the proceeds and skip the country. This would clearly be illegal/wrong and the beneficial owners could sue to regain their cash -- but what could the parties do to protect themselves against such eventuality (I guess this applies to the estate of A even if he had not re-assigned beneficial ownership).

                            c) Could A somehow take proceedings against B to force B to permit the HMLR register to be changed to reflect the true owners (i.e. to have himself removed from the register)?

                            Comment


                              #15
                              There is no reason C & D have to be on the legal title (for tax, inheritance purposes). Correct?
                              Correct.

                              I understand that to be the case but is it documented anywhere?
                              Not as such, no.


                              Before proceeding further, an observation. Both systems of conveyancing, registered and unregistered, are set up to balance two potentially conflicting objectives:

                              (a) the simplification of conveyancing to make property marketable so that purchasers are confident that they take property free from interests or encumbrances they have no notice of;

                              (b) the need to protect beneficiaries and all others who are not legal owners but have an interest in property.

                              Concentrating on benefical owners, rather than others who may have an interest such as tenants or those with a right to exercise easements, what the law does is to bring in the curtain principle. The trustees stand in front of the curtain and the beneficaries behind it. Subject to exceptions which need not detain us, so long as there are at least two trustees, a purchaser who has notice of a trust is not interested in what is happening behind the curtain. He is only interested in ensuring that the trustees’ title is in order.

                              On a sale the beneficaries’ interest is transferred to the proceeds of sale. Their protection, admittedly not that great, is that a buyer is required to pay the purchase money to at least two trustees. If the buyer does not pay to two trustees or there is no consideration, the trust continues.

                              a) blind trusts cannot be registered with HMRC (?) - therefore when the property comes to be sold or a party dies there could be a debate with HMRC about tax. -- is there some way a restriction can be entered by A alone ? Any other way to formally document this beyond the "private" trust deed?
                              No such restriction may be entered because the LRA 2002 section 33 (a)(i) expressly says it cannot. However, a restriction can be entered requiring that no disposition under which capital money arises is to be registered without a court. Such a restriction brings in the curtain principle. This specific restriction is always entered on the register when HMLR has notice on registering a transfer that the survivor of joint owners cannot give a valid receipt for capital money. When a trust arises after registration there is an obligation to inform HMLR, but no sanction for failing to do so. The beneficaries have sufficent interest to apply for a restriction.

                              There is no way to enter any details of the creation or transfer of beneficial interests on the register.

                              b) If A dies, B becomes the sole trustee - and can sell the property without recourse to C or D, and pocket the proceeds and skip the country. This would clearly be illegal/wrong and the beneficial owners could sue to regain their cash -- but what could the parties do to protect themselves against such eventuality (I guess this applies to the estate of A even if he had not re-assigned beneficial ownership).
                              As mentioned, so long as there is an appropriate restriction on the register, the purchase money has to be paid to at least two trustees. That does not of course stop B from appointing a crony as co-trustee, but any crony takes a risk as he becomes personally liable to the beneficiaries.

                              c) Could A somehow take proceedings against B to force B to permit the HMLR register to be changed to reflect the true owners (i.e. to have himself removed from the register)?
                              In the absence of any provision in the trust instrument concerning the appointment of new trustees (and assuming no fraud or incapacity) A cannot force B to appoint C and D trustees.

                              Comment

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