Declaration of trust or joint tenants agreement?

penelopepittst

My elder brother is the legal owner of my the family home. My parents want him to transfer equity 1/3 each to me and my sister. He has agreed to this. As the house still has a small mortgage of over 70k in his name there will be Cgt and stamp duty to be paid. Instead he has agreed to do a declaration of trust or a joint tenants agreement. Can anyone advise on here which is better? We have been quoted over £1k for the trust and only £200 for the tenants agreement. We have also seen that we can write this ourselves but are unsure. We can of course leave things as they are and trust my brother will do the right thing when the time comes… both my sister and I have our own children which we would like to leave our share of the family house to them as well. 

Keep_pedalling

Do you and your sister currently own your own home? If not this could be a big mistake as you would lose your FTB status and on top of that would have an extra 3% tax to pay on your first home.

If your brother does not live in the property then yes he will could well have a CG liability on any transfer.

Why does your brother own your parents home? If this is some kind of care cost avoidance scheme then it is a terrible idea.

cr1mson

As Keep_pedalling says why does he own family home? Do parents still live there? What is reason for transfer? If this is to avoid care home fees then potential disaster!

SDLT_Geek

penelopepittst said:

My elder brother is the legal owner of my the family home. My parents want him to transfer equity 1/3 each to me and my sister. He has agreed to this. As the house still has a small mortgage of over 70k in his name there will be Cgt and stamp duty to be paid. Instead he has agreed to do a declaration of trust or a joint tenants agreement. Can anyone advise on here which is better? We have been quoted over £1k for the trust and only £200 for the tenants agreement. We have also seen that we can write this ourselves but are unsure. We can of course leave things as they are and trust my brother will do the right thing when the time comes… both my sister and I have our own children which we would like to leave our share of the family house to them as well. 

Transferring an interest "in equity" only, as would be the case for a declaration of trust / joint tenancy, still has tax consequences. 

The elder brother will still have made a "disposal" of an interest in property and the market value rule will apply.  If for part of his ownership he lived in it, then there might be a relief for a proportion of the gain, often called "principal private residence" relief.

penelopepittst

Thank you for your reply. Can I just clarify that transferring an interest in equity as would be the case for a declaration of trust /joint tenancy will only have tax consequences when we go to sell our 1/3? Both my sister and I already have our own homes. We are just trying to protect our inheritance in case my brother decides not to pass this on when the time comes or in the event he gets a divorce his wife gets a share of it. Is a declaration of trust or joint tenants agreement the safest way to go? Is there anything else we can do? Thanks for your help.

Annisele

I don't think this is just about what is "safest"; it's also about how to achieve what you actually want.

If the point is to ensure you and your siblings are all treated fairly, I'd be surprised if holding as joint tenants is the best way to achieve that. If you hold as joint tenants and one of you dies, then the house will pass to the other two - regardless of what it says in the will of the deceased sibling. Given that you say you want to leave "your share" to your own children, I can't see how holding as joint tenants will achieve that.

Is there a reason your elder brother can't transfer the ownership of the house to your parents instead?

SDLT_Geek

penelopepittst said:

Thank you for your reply. Can I just clarify that transferring an interest in equity as would be the case for a declaration of trust /joint tenancy will only have tax consequences when we go to sell our 1/3? Both my sister and I already have our own homes. We are just trying to protect our inheritance in case my brother decides not to pass this on when the time comes or in the event he gets a divorce his wife gets a share of it. Is a declaration of trust or joint tenants agreement the safest way to go? Is there anything else we can do? Thanks for your help.

Transferring the interest in equity will be an immediate CGT disposal by your brother.  You have not said whether he lives in the property.

penelopepittst

No he doesn’t live there he has his own house. So if we do a declaration of trust or joint tenants agreement tomorrow will he have to pay immediate CGT or is this only if he sold it?

Keep_pedalling

penelopepittst said:

No he doesn’t live there he has his own house. So if we do a declaration of trust or joint tenants agreement tomorrow will he have to pay immediate CGT or is this only if he sold it?

CGT applies on sale or transfer to connected persons so yes it will apply. There are other interesting tax twists with this arrangement. For starters for IHT purposes the share he transfers to his siblings remained in his estate for 7 years, and assuming your parents are still living in the property and originally transferred it to your brother the whole property remains in their estate indefinitely as it is a gift with reservation of benefit.

_Penny_Dreadful

Whilst there’s a mortgage in place I doubt he’s transferring anything anywhere. I suppose you and your sister could offer to help pay the mortgage off so that your brother could then transfer ownership of the property so that all the siblings own it as tenants in common.  

penelopepittst

Agreed paying the mortgage off would be the best option but we can’t afford this at this time so we want to do something to protect our inheritance in case he gets a divorce or does not do the right thing when the time comes. Can anyone advise whether a declaration of trust or a joint tenants agreement be better?