Bare Trust vs Declaration of Trust

Emilybutt12

Hi all,

I've had a look on the forums but can't find one that seems to answer my question. I do apologise if this has already been answered.

My husband owns a buy to let property (mortgaged) - the deposit was put down by him, he's on the title deeds and mortgage. However it is "his brother's property" (long story short his brother wasn't in the country to sign the paperwork on completion/ exchange and now lives and works abroad) and he receives the rental income and pays the mortgage (transfers the mortgage amount to my husband). We had looked at selling/ transferring/ gifting the flat from my husband to my brother in law but CGT, SDLT and that fact that it's hard for my brother in law to get a UK buy to let mortgage means that's now not a viable/ financially sensible option. Currently a my husband (well me on his behalf!) fills in a SA for the rental income but him being a higher tax payer means my brother in law pays a lot of tax.

My question is should we draw up a Bare Trust where my brother in law is the beneficiary and my husband the settelor and trustee, or a Declaration of Trust? We want my brother in law to be earning the income according to HMRC rather than my husband. I'm aware that then my brother in law will need to submit a SA and all that entails. We're trying to separate the legal ownership from the financial.

Also can either of these options be drawn up by me (a lay person), or does it have to be a lawyer? I'm terms of selling, price increase, deposit etc all proceeds would go to my brother in law as it is seen as his property within the family.

Thanks

Em

00ec25

can we confirm the facts?

Is this the same property as your other thread? You are saying that:
- only your husband is on the title deeds as legal owner
- only your husband put in the deposit and the mortgage is in your husband's name which he makes the payments on in his (ie. your husband's) own name
- your BIL reimburses your husband for the mortgage cost by transferring money from overseas to your husband (each month?)
- your husband collects the rent into an account in husband's name but then pays that to your BIL (or does the tenant pay direct to the BIL or via a letting agent?)
But...
on paper, your BIL has no interest whatsoever in the property apart from the mortgage payment transfer

if the rent ends up with the BIL then it is the BIL who already has the beneficial interest and he should have been declaring it for tax from the outset, not your husband. (Technically your husband has the status of UK agent for a non resident overseas landlord, but that in itself is a can of worms since that means BIL is liable for a number of landlord breaches )

Emilybutt12

Hi,

Thanks for replying. In response to your question:
- Is this the same property as your other thread?
These are two separate properties, hence two different threads and two different pieces of information.

You are saying that:
- only your husband is on the title deeds as legal owner!- Yes
- only your husband put in the deposit and the mortgage is in your husband's name which he makes the payments on in his (ie. your husband's) own name - Yes but the deposit part is irrelevant in terms of the family
- your BIL reimburses your husband for the mortgage cost by transferring money from overseas to your husband (each month?) - No, see below
- your husband collects the rent into an account in husband's name but then pays that to your BIL (or does the tenant pay direct to the BIL or via a letting agent?) - some rent comes to a joint account to pay the mortgage, the rest goes to my BIL
But...
on paper, your BIL has no interest whatsoever in the property apart from the mortgage payment transfer - Yes, which is what I'm trying to rectify

if the rent ends up with the BIL then it is the BIL who already has the beneficial interest and he should have been declaring it for tax from the outset, not your husband. (Technically your husband has the status of UK agent for a non resident overseas landlord, but that in itself is a can of worms since that means BIL is liable for a number of landlord breaches ). - I'm not entirely sure what relevance this has to my question posed, and I'm unsure why the facts needed confirming as I have above. If I'm missing something please tell me, but I'm not sure that any of the points above glean any further relevant information.

I'm merely looking for information/advice for what is most suitable: a Bare Trust or Declaration of Trust or an alternative or nothing.

Thanks

Tom99

Emilybutt12 wrote: »

We're trying to separate the legal ownership from the financial.

[FONT=Verdana, sans-serif]What you are trying to do is define who is/are the beneficial owners.[/FONT]
[FONT=Verdana, sans-serif]Its a declaration of trust you need, which will say your husband (as the sole legal owner) holds the property on trust for brother as 100% beneficial owner. Then for all taxes the brother owns the property.[/FONT]

[FONT=Verdana, sans-serif]You could have a go at drafting one but since so much tax is involved why not get a local solicitor to draft it, the brother will be paying I should think.[/FONT]

[FONT=Verdana, sans-serif]How long has your husband owned this property? I am not sure if you can backdate the beneficial ownership, you probably can, otherwise your husband may have a CGT bill.
[/FONT]

AdrianC

Emilybutt12 wrote: »

My husband owns a buy to let property (mortgaged) - the deposit was put down by him, he's on the title deeds and mortgage.

Your husband owns it. Nobody else.
Your husband is legally responsible for the mortgage. Nobody else.

However it is "his brother's property" (long story short his brother wasn't in the country to sign the paperwork on completion/ exchange and now lives and works abroad) and he receives the rental income and pays the mortgage (transfers the mortgage amount to my husband).

Lovely, an' all, but your husband is still the owner of the house.

We had looked at selling/ transferring/ gifting the flat from my husband to my brother in law but CGT, SDLT and that fact that it's hard for my brother in law to get a UK buy to let mortgage means that's now not a viable/ financially sensible option. Currently a my husband (well me on his behalf!) fills in a SA for the rental income but him being a higher tax payer means my brother in law pays a lot of tax.

So your husband is also legally the landlord, with all the responsibilities?


<holds head in hands>
Well, at least tax is being paid...



How much is your husband gifting his brother every month? Because that's what's happening here...

Your husband is gifting the brother the difference between the amount that gets shuffled backwards and forwards. I assume that it is a positive net amount...?

We want my brother in law to be earning the income according to HMRC rather than my husband.

He already should be, if he wants to be viewed as the joint-landlord legally.

I'm aware that then my brother in law will need to submit a SA and all that entails.

He already should be.

We're trying to separate the legal ownership from the financial.

I thought you wanted both to go from your husband to the BiL...?


Look, it's very simple.

Right now, if your brother-in-law cannot raise a mortgage in his own name, he cannot afford own this property. He cannot afford to buy it off your husband, the current owner and landlord. How you want to view your monthly gifts to him is another question entirely, and that's where family internal feelings come into it.

Your brother-in-law is trying to run a business that he can't afford, from a foreign country. WHY?

Tom99

AdrianC wrote: »

Look, it's very simple.

[STRIKE]Right now, if your brother-in-law cannot raise a mortgage in his own name, he cannot afford own this property. He cannot afford to buy it off your husband, the current owner and landlord. How you want to view your monthly gifts to him is another question entirely, and that's where family internal feelings come into it.

Your brother-in-law is trying to run a business that he can't afford, from a foreign country. WHY?[/STRIKE]

[FONT=Verdana, sans-serif]Just get on with it and have the declaration of trust draw up, in whatever ratio husband/brother takes your fancy.[/FONT]
[FONT=Verdana, sans-serif]The point about acting as agent for an overseas party is a good one and worth looking into. It seems that so far you have, for tax purposes, paid tax as if the property was 100% your husbands.[/FONT]

00ec25

Emilybutt12 wrote: »

Hi,

Thanks for replying. In response to your question:
- Is this the same property as your other thread?
These are two separate properties, hence two different threads and two different pieces of information. which was not clear from the outset since there are many similarities over husband and brother both looking to offload a property where it now turns out there are 2 separate properties whose ownership is to be "altered"

You are saying that:
- only your husband is on the title deeds as legal owner!- Yes
- only your husband put in the deposit and the mortgage is in your husband's name which he makes the payments on in his (ie. your husband's) own name - Yes but the deposit part is irrelevant in terms of the family no, it really does matter who paid it
- your BIL reimburses your husband for the mortgage cost by transferring money from overseas to your husband (each month?) - No, see below
- your husband collects the rent into an account in husband's name but then pays that to your BIL (or does the tenant pay direct to the BIL or via a letting agent?) - some rent comes to a joint account to pay the mortgage, the rest goes to my BIL so in cash terms the BIL directly receives ALL of the rent into accounts in his name and husband only has a small claim via a joint account
But...
on paper, your BIL has no interest whatsoever in the property apart from the mortgage payment transfer - Yes, which is what I'm trying to rectify so the reality is different to what you think of as your paper construct

as the rent ends up with the BIL then it is the BIL who already has the beneficial interest and he should have been declaring it for tax from the outset, not your husband. (Technically your husband has the status of UK agent for a non resident overseas landlord, but that in itself is a can of worms since that means BIL is liable for a number of landlord breaches ). - I'm not entirely sure what relevance this has to my question posed, and I'm unsure why the facts needed confirming as I have above. If I'm missing something please tell me, but I'm not sure that any of the points above glean any further relevant information.

I'm merely looking for information/advice for what is most suitable: a Bare Trust or Declaration of Trust or an alternative or nothing.

Thanks

what you are missing is the answer to the question is BIL already a beneficial owner of the property or not.
You can be a beneficial owner without having a DoT in place saying so if you contributed to the original price, and you receive the ongoing rent, and, as you have now clarified, BIL does pay towards the mortgage via a Joint account.

you have now confirmed that BIL gets the rent paid direct to himself. That means your BIL should already be declaring that income on his own tax return. The fact you have included it on your husband's return instead does not alter the fact that your BIL is directly receiving taxable income.

On that basis your exposure to HMRC is high and you should not be trying to sort this out DIY as there is an existing beneficial ownership which you now need to "hide"

those above who say your husband is gifting his own post tax money to BIL are technically incorrect. I agree however that you have got away with it so far and HMRC probably have little reason to come after BIL. Nonetheless, that is the true position and BIL should have been paying tax on it himself under the non resident LL scheme.
Seeing as it appears you are trying to sort out multiple properties, it is clear you should be getting professional help from solicitors and accountants as on the info so far you have been getting it wrong.

the point I'm labouring is that bringing DoT into the formal public record therefore will trigger a CGT position since the husband is disposing of his share of a property. Remember, CGT is based on beneficial ownership, not legal ownership so you need to show that husband may remain the legal owner but has never been its beneficial owner from the outset or husband will be paying a large CGT bill.

xylophone

This seems to me to be a mess.

In your position, I'd be seeing a solicitor as soon as possible.

getmore4less

Transferring beneficial ownership will be a disposal for CGT.

Emilybutt12

Tom99 wrote: »

[FONT=Verdana, sans-serif]What you are trying to do is define who is/are the beneficial owners.[/FONT]
[FONT=Verdana, sans-serif]Its a declaration of trust you need, which will say your husband (as the sole legal owner) holds the property on trust for brother as 100% beneficial owner. Then for all taxes the brother owns the property.[/FONT]

[FONT=Verdana, sans-serif]You could have a go at drafting one but since so much tax is involved why not get a local solicitor to draft it, the brother will be paying I should think.[/FONT]

[FONT=Verdana, sans-serif]How long has your husband owned this property? I am not sure if you can backdate the beneficial ownership, you probably can, otherwise your husband may have a CGT bill.
[/FONT]

Thank you for your reply. May I ask why he would need backdate the beneficial ownership? And why would he have a CGT bill?

My understanding is that to all intents and purposes my husband has received the rental income, paid the tax due on the profit made, and gifted any excess to his brother. As he is not disposing of an asset surely there isn't a CGT to pay?

Emilybutt12

AdrianC wrote: »

Your husband owns it. Nobody else.
Your husband is legally responsible for the mortgage. Nobody else. I have not said anything to the contrary



Lovely, an' all, but your husband is still the owner of the house. Again not said anything to the contrary



So your husband is also legally the landlord, with all the responsibilities? Yes,


<holds head in hands>
Well, at least tax is being paid...Thank you for this very snide remark



How much is your husband gifting his brother every month? Because that's what's happening here...

Your husband is gifting the brother the difference between the amount that gets shuffled backwards and forwards. I assume that it is a positive net amount...?




He already should be, if he wants to be viewed as the joint-landlord legally.




He already should be. Should be is not particularly helpful. There are always lots of 'shoulds' in life, but things aren't always as black and white, so I am trying to move things forward, not look at the past which cannot be changed.



I thought you wanted both to go from your husband to the BiL...? As I said this is not a financially viable option


Look, it's very simple.

Right now, if your brother-in-law cannot raise a mortgage in his own name, he cannot afford own this property. He cannot afford to buy it off your husband, the current owner and landlord. How you want to view your monthly gifts to him is another question entirely, and that's where family internal feelings come into it.

Your brother-in-law is trying to run a business that he can't afford, from a foreign country. WHY?

I have never said he cannot raise a mortgage, just that living in China makes it more difficult. So no my BIL is not trying to run a business that he cannot afford. As I said above life throws curveballs, and so the original plan of him living in the property has not happened. Life happens, and I am merely trying to do the best, most honest and right thing in the situation

MSE forums are for civilised conversations and to help forum members out, not to cast aspersions on the situation or make derogatory comments. I asked a question to which only snide remarks were made.