Bare Trust vs Declaration of Trust

getmore4less

On your believe he owns it,

he is disposing of an asset, the beneficial interest in a property.

Emilybutt12

00ec25 wrote: »

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. Sorry what I meant was that the money my BIL receives is the profit my husband is receiving i.e. income - all expenses including the tax payable. This leaves my BIL receiving well below the Personal Allowance and NI contribution cut off, in part because of my husband paying higher tax and in part because of high expenses. As said in reply to another post life threw a curve ball and my brother in law was required by his job to relocated to China, and so we have become accidental landlords. We were advised at the beginning that because legally and for the mortgage the property is my husbands then to all intents and purposes he receives the rental income, fills in a SA, pays tax accordingly and gifts my BIL any extra. My BIL is now having to stay in China longer than planned, and so we are now rectify the situation

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" Why is our exposure to HMRC high? And we are not trying to hide anything

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. As said above there are lots of 'shoulds' in life and we followed the advice given. We are now trying to sort the situation out moving forward

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. Whilst I am not disagreeing with you, there is little I can do over the Christmas period, and so I thought I might be able to glean some information from posts on the MSE forum. I am not sure why you are saying we have been getting it wrong so far, we acted on accountant advice at the beginning, and are now trying to change things in line with the new/current situation. Just before Christmas in passing an account friend mentioned beneficiary vs legal ownership, however with the Christmas period I have been unable to see him, or our family solicitor

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.

Please may you expand on this as I am confused as my husband is not disposing of the property, and what I have read on the government website discusses disposing of an asset ie selling.

Emilybutt12

xylophone wrote: »

This seems to me to be a mess.

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

I am not arguing with you there, it is not the ideal but it is what life has thrown us. Our life situation has changed, so I am trying to change things with it. But with the Christmas Period it is hard to contact my family solicitor, so thought I would see whether I can glean any information, help or advice on here.

Emilybutt12

getmore4less wrote: »

On your believe he owns it,

he is disposing of an asset, the beneficial interest in a property.

I am not following you. 'On your believe he owns it', is there a typo in there? Anything I have seen online on the government website refers to disposing of an asset ie selling it, nothing to do with beneficial interest. Is there anywhere you can signpost me to? If there is CGT what would happen when we do sell the property?

00ec25

Emilybutt12 wrote: »

I am not following you. 'On your believe he owns it', is there a typo in there? Anything I have seen online on the government website refers to disposing of an asset ie selling it, nothing to do with beneficial interest. Is there anywhere you can signpost me to? If there is CGT what would happen when we do sell the property?

you simply have not read enough

as you keep drip feeding info, let us summarise the latest position:
1. BIL has a joint account with husband into which rent is paid
2. BIL and husband are not married to each other, so are legally allowed to agree an unequal split of the rental income, costs and profits as they see fit, BUT nothing is on paper to demonstrate there was an agreed profit share to 100 husband : 0 BIL from the outset.
3. Given 2, BIL is a beneficial owner of the property and receives a profit share of the rent, he does not receive a gift from your husband, he receives a share of taxable income that has been received in his own name (joint account) upon which BIL has paid no tax. (This is the technical stumbling block you have to "hide" - there is a technicality IRO rental income which says it is the person entitled to the income who should be taxed, and that may, or may not, be the person who physically receives it. In your case: is husband the agent of the BIL? or, since the beneficial interest is a "family matter" and clearly is considered to be BIL's, not husband's is all the income BIL's. get it wrong and it's possible for the same money to be taxed twice, once on the entitled person, and once on the cash receiver - see "who is charged to tax": https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1020)
4. CGT is based on beneficial ownership, not legal ownership. husband is a beneficial owner of the property as he receives rent from it into a joint account bearing husband's name and uses that to pay mortgage in husband's sole name. Disposal would include transfer to BIL of husband's share
5. if HMRC challenged your husband, the scenario as you have presented it so far would not stand up. Your husband cannot be sole beneficial owner based on the facts as you have presented them. Your BIL cannot be merely in receipt of cash gifts from his brother since BIL is, in money movement terms, actually a beneficial owner. Basic maxim of any taxman - follow the cash and tax where it goes ....

"disposal" does not mean selling, it includes change of ownership
https://www.gov.uk/capital-gains-tax
Disposing of an asset
Disposing of an asset includes:

• selling it
• giving it away as a gift, or transferring it to someone else
• swapping it for something else
• getting compensation for it - like an insurance payout if it’s been lost or destroyed

Beneficial ownership and CGT liability
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg11730


with all due respect, you may not have understood what the original accountant did and/or you may now be only relaying partial info causing us to give advice based on erroneous info. As I see it, there are only 2 possible outcomes :

1. the scenario as you want/think it was originally done as, ie husband is sole beneficial owner. Your problem here is that no bare trust can be claimed to exist from the outset as a verbal agreement 100/0 since it involves property and therefore the trust must be in writing, so upon making it formal now as a written DoT, the transfer to brother will result in:
a) husband will be seen as having disposed of 100% of his asset and must pay CGT
b) as husband and brother are "connected persons" for CGT purposes the CGT will be calculated on the gain from original purchase price to current open market value, not whatever cash or mortgage amount changes hands.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14480
and given you have already found the word settlor you may be able to follow the more detailed info here:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530

ie husband will get a tax bill he must pay but won't have sold anything from which to get cash to pay that tax

or,
2. if you can show from the outset that BIL was the sole beneficial owner, husband escapes CGT, but BIL is in deep do do for failure to declare years of rental income for his own income tax purposes.
Husband would be able to apply to resubmit his own income tax and possibly get a refund of it, since he should never have paid any tax as he was not entitled to the profit since BIL was and is the real beneficial owner.

Option 2 is probably something you'll reject or won't want to do.....

hence rather than try and work all this out yourself over a bank holiday period, when you simply cannot present info in sufficient detail on a forum to allow people to give reliable answers, you should pay a professional to advise you - and that goes for the other property your husband and your BIL are faffing around with as well

Tom99

Emilybutt12 wrote: »

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?

Unless 100% of the beneficial ownership was with brother from the outset (even if not formally documented as such) then when your husband does confirm/transfer whatever beneficial ownership your husband has to brother, he will have made a disposal for CGT purposes, deemed to be at Open Market Value because the parties are connected/not at arms length.

Emilybutt12

Thank you all for your help and advice, things are now much clearer, and I've been pointed in the right direction for further reading (which was the whole point).

I recognise that this isn't the ideal situation, but we followed sound advice (which was clearly understood OOec25) at the start. I've never said I'm trying to sort it out on my own (or faff around with our other property - thank you for that kind remark OOec25), I'm not a lawyer or accountant and will be seeking advice once the Christmas period is over, I've merely asked a question and answered those posed to me so that I can get a better understanding. Surely that is what we should all be doing, and encouraging others to do. We are not trying to hide, shirk or not pay what is rightfully due, but it is about looking at the current situation and different options available to us.

A little bit of kindness, compassion and 'treat others how you would like to be treated' goes a long way, so I thank those who have replied in just a way.

Happy New Year to you all

steampowered

As OOec25 pointed out, a declaration of trust will be a transfer of beneficial ownership which will trigger a CGT liability.

I would add one other point you might not have considered.

Remember that people usually have to pay tax wherever they are tax resident. On all of their income, not just what they get paid locally.

If your brother in law owns a financial interest in the property, you are likely to find that he will have to pay tax on the rental income in China. The top rate of income tax in China is 45%.

getmore4less

If this is treated as hubbies house, tax etc. and he gifts the beneficial interest to the brother he no longer has any rental income to pay the mortgage debt.

00ec25

Emilybutt12 wrote: »

Thank you all for your help and advice, things are now much clearer, and I've been pointed in the right direction for further reading (which was the whole point).

I recognise that this isn't the ideal situation, but we followed sound advice (which was clearly understood OOec25) at the start. I've never said I'm trying to sort it out on my own (or faff around with our other property - thank you for that kind remark OOec25), I'm not a lawyer or accountant and will be seeking advice once the Christmas period is over, I've merely asked a question and answered those posed to me so that I can get a better understanding. Surely that is what we should all be doing, and encouraging others to do. We are not trying to hide, shirk or not pay what is rightfully due, but it is about looking at the current situation and different options available to us.

A little bit of kindness, compassion and 'treat others how you would like to be treated' goes a long way, so I thank those who have replied in just a way.

Happy New Year to you all

since you have decided to have a dig at me (I note you have also had a go at someone on your savings thread) this forum exists to enable people to seek help on "saving money". Your post was typical: I want to DIY "this" and need to find out how I do that.

Also typical is the fact that the background to the actual question is more complex than a simple question, and can involve many interrelated technical issues which are not detailed in the few lines used in forum posts.

You had 2 posts running: the one asking which land registry form to use to transfer a property to BIL and this thread here. Both indicated you were trying to DIY and both have now revealed that in actuality your husband owns at least 3 properties, two of which he wants to "transfer" to his brother currently in China. I note from your separate post re child savings that you like to research things yourself, (as we all do), but there is a point at which you should leave it to professional advisers, and your husband's property issues is one of those.

The point remains that on the info you have presented, DIY actions may rebound on you because of the tax implications in a much wider context than the question you asked and now think has been answered. Without that wider context you will indeed "hide" things because you won't have factored in their significance. Pity you seem to regard that as being a personal attack on you, it wasn't, it was merely contextualising your overall position - your husband has a situation where the solution will have repercussions on either him or his brother