Deed of trust ( tax implications)

Deed of trust ( tax implications)

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I have a new client who 5 years ago invested in a friends property by way of a deed of trust where she received 50 percent of all future rental income and proceeds on sale of the property for £50k . She has been putting on 50 percent of all income and expenses on her tax return each year . Is this correct? When the deed was drawn up , should the property have been officially valued and should have there been a capital gain for the trustees on the 50 percent transferred to my client,the beneficiary ?
My client has also found out that the deed of trust was not registered at the land registry by the solicitor who carried out the work. Will there be an issue for HMRC.? She is making progress to complete this registration now .
Any advice would be much appreciated !

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By gbuckell
12th May 2015 11:32

Disposal

From your description it would appear that the friend sold a 50% interest in the property to your client for £50k. The deed of trust sounds like the agreement to record that fact with the property title remaining solely in the friend's name. It is the friend that has made a disposal, not the trustees (unless the friend is also a trustee).

If there is no dispute over the facts,both parties have been recording 50% of net income in their respective tax returns and the friend reported his capital gain, if any, I cannot see HMRC getting excited.

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Replying to lionofludesch:
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By DAKINS
12th May 2015 12:09

Declaration of Trust and not Deed of Trust

Thank your for your advice - would your advice differ if it was a Declaration of Trust instead.

I have just received the paperwork where no mention is made of the amount exchanged and friend and husband are referred to as trustees and my client , the beneficiary. I am wondering  if it was set up this way so no disposal of property needed to be registered.

Many thanks

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By gbuckell
12th May 2015 12:25

Terms of the deed

The wording of the deed needs to be examined carefully to determine if there is a gap between what it says and what was intended to happen. The use of the words trustees and beneficiary is not necessarily inconsistent with the idea of an outright sale. It may be that this is simply a bare trust creating a difference between legal ownership (friend and husband?) and beneficial ownership (friend and your client). Tax follows beneficial ownership.

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