Old chestnut, I know, on joint ownership, married couple, form 17. But client's lawyer has prepared a declaration of trust (not yet seen by me) and informed our client that my understanding on property joint tenancy and taxation is wrong. It would be great to receive well informed confirmation from fellow AWebbers, if that is the case.
High earning client wishes non-earning wife to be seen as 100% beneficial owner of several BTLs, owned as joint tenants, and has subsequently called HMRC to say "who's right?" HMRC, of course, sit on the fence; client, of course, doesn't want to pay more fees.
My understanding, based on Form 17 guidance notes, tax training courses, TSEM9850, discussions in Taxation and Accountingweb, was that legal Joint Tenancy equates precisely to joint beneficial ownership and means an undivided share of the whole. I believed that without discreet shares, as I thought can only be held by tenants in common, a declaration or Form 17 would be invalid. Can a declaration of trust evidence a non-equal ownership share of property owned as joint tenants? The lawyer states I'm confusing legal and beneficial ownership. However, I'd (mis?) understood that joint tenancy is a form of beneficial ownership with accompanying automatic income and IHT survivorship implications. I'm no lawyer!
The lawyers disagree. Perhaps a declaration of trust severs joint tenancy and creates a tenancy in common, so that Form 17 can state that the property is now held in unequal shares. I've not filed a form 17 before and this client intends filing it himself (trained with a certain professional body and senior bod in industry) but guess who then files the 2015/16 tax return.
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You need to establish the type of ownership ?
You seem adamant that they own as joint tenants whereas lawyer seems to believe it is tenants in common, which is correct?
Form 17 is for tax treatment only, where beneficial (rather than legal) ownership is not equal as HMRC default position on joint ownership is 50:50 regardless of actual beneficial ownership.
Solicitor can confirm if trust declaration severs joint tenancy (seems likely). Presumably client now considers himself to be a nominee with his name on the Deeds but with no beneficial interest? Whose income was it up to now?
Did she contribute anything towards initial purchase or is this effectively a gift by him to her of the whole?
this is a legal rather than accountancy question
and lawyers seldom agree so you may wish to get a second legal opinion for your own benefit?
Sadly my browser doesn't let me post links and the typing function is questionable but if I've typed this correctly it may be worth a look?
https://www.lawsociety.org.uk/support-services/advice/practice-notes/joi...
The solicitor is correct. The legal ownership is in joint names, and CAN ONLY BE HELD as joint tenants, as a matter of land law. The effect of the deed of trust expressing other than 1 50:50 shares is that the beneficial ownership is as tenants in common. See sections 2.1 and 2.2 of maxaca's link.
Unsurprisingly, HMRC's guidance presents matters in a way that suits them, and the prestigious tax lecturer was lecturing out of their [***].
It is possible ...
OK this is my understanding, which could be an accumulated decade of hogwash:
It is possible, and not that uncommon, for a joint tenancy to be severed in favour of a tenancy in common without disturbing the 50:50 split of beneficial ownership. You might do this for example if on your death you wanted to bequeath your half share without it passing by survivorship, and if you did not want your estate for IHT to include the entire property.
So, if there has been a change, and it has not been a change of beneficial ownership (50:50 before, 50:50 after) then that change is in the legal ownership (to me, so it seems). I have also been taught from the cradle that a "joint tenancy" must be treated as equally beneficially entitled. Accordingly I have taken the view until now at least that if the beneficial ownership is otherwise than 50:50 it must have followed from a change of legal ownership from joint tenancy to tenancy in common. But by contrast a conversion from joint tenancy to tenancy in common does not necessarily result in a change of beneficial ownership (although it might).
With kind regards
Clint Westwood
A legal interest in land cannot be held otherwise than as joint tenants, by virtue of paragraph 1(6) of the Law of Property Act 1925: "a legal estate is not capable of subsisting or being created in an undivided share [as applies to tenants in common] in land...".
See also: http://www.inbrief.co.uk/land-law/coownership-land-law.htm
A change in the beneficial ownership from joint tenancy (by default to match the only possible legal interest) to tenancy in common does change things. With a joint tenancy the joint tenants are effectively treated as a single person who owns the whole of the property, each being a proportion of the person who owns the property. With tenants in common each tenant is a separate person who owns an undivided share in the property.