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CGT on transfer of beneficial ownership

Brothers jointly own buy-to-let - Would like to transfer beneficial ownership to their wives

Hi

A client currently owns a buy-to-let property with his brother, and both brothers would like to transfer part of the beneficial ownership to their wives so that the beneficial ownership is 25% each. 

I understand that legal ownership can only be in the form of "joint tenants" (LPA 1925, ss 1, 36), whilst beneficial ownership can be in the form of  "joint tenants" or "tenants in common". The current legal ownership must therefore be between the two brothers as joint tenants, however, the beneficial ownership is currently as "tenants in common". 

If the brothers were to change the beneficial ownership to B1=25%/W1=25%/B2=25%/W2=25% with one declaration of trust, then it could be argued that each borther was gifting 12.5% of their current share of the ownership to each wife. If this was the case, then the no gain, no loss CGT rule would not apply to a portion of the transfer and the the brothers would be liable to CGT on the gift.

If anyone could point me to the guidance on how HMRC would treat such a disposal I would be really greatful.

To side step the problem, I have thought that maybe the beneficial ownership could be transferred to two stages. The first changing the beneficial ownership to B1=50%/W1=0%/B2=25%/W2=25%, and then a second change to B1=25%/W1=25%/B2=25%/W2=25%. This way it would seem clearer who had disposed of which element. 

This isn't something I have dealt with before, and I would appreciate any guidance anyone can offer. 

Kind regards

Chris

Replies

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18th Feb 2018 15:16

I would leave the legal niceties to the lawyer who will be effecting the transfers. Your client and his brother just need to give instructions that each is gifting 50% of his interest to his spouse.

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18th Feb 2018 15:30

Thanks John. I was concerned that they would expect me to know the tax consequences of what it is that I am asking them to do. I will call a few solicitors tomorrow to discuss it. I don't suppose there are any that you recommend for this type of work, that charge reasonable fees?

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to chrisacc1985
18th Feb 2018 15:34

You do know the tax consequences. As you say in your post inter spouse transfers are CGT exempt.

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to johngroganjga
18th Feb 2018 18:58

I guess my concern is that unless the solicitors do it in a certain way, there is a risk that HMRC wont view it as a transfer between spouses, given the third party.

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to chrisacc1985
18th Feb 2018 21:08

What third party?

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to johngroganjga
18th Feb 2018 22:40

The brother. It could be argued that each brother was gifting 12.5% from their current share of the ownership to each wife, rather than only gifting a 25% share to their own wife. If this was the case, then the no gain, no loss CGT rule would not apply to a portion of the transfer

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to chrisacc1985
19th Feb 2018 03:43

Read what I said the instruction the brothers should give to the solicitor would be. No-one can argue that the transfers of ownership are different from what the documents say they were. You are over-thinking.

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to johngroganjga
19th Feb 2018 07:50

Thanks John.

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18th Feb 2018 15:31

DUPLICATE - IGNORE

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18th Feb 2018 19:38

I believe that you have misunderstood matters and are worrying unnecessarily. CGT is concerned with beneficial ownership and not legal title. The only distinction between joint ownership as joint tenants and tenants in common is that with the former, and following death, the deceased 's share in the property automatically passes to the other joint owners. In the latter case it does not and can be made the subject of a bequest under a will. In your example each brother beneficially owns a half share. and if he gives half of that share (a quarter share) to his wife there is a no gain/no loss disposal. Thereafter each joint owner owns a quarter share, which they may hold either as joint tenants, or tenants in common, depending upon whether they want their quarter share to pass to the other joint owners equally following death, or as is more likely to be the case they would want their quarter share to pass to their spouse in which case ownership needs to be as tenants in common following the inter spouse transfers.

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to michaelblake
18th Feb 2018 22:51

Thank you Michael, I do feel as though I might be worrying unnecessarily. However, if only a declaration of trust is drawn up, the trustees will be the two brothers (legal title), and the beneficiaries will be the two brothers and the two wives. There is nothing to indicate which share the wives' beneficial interests came from, and it would therefore seem logical to asssume that a half of each wife's share came from each brother.

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to chrisacc1985
19th Feb 2018 08:44

What I said the brothers should effect is legal transfers, not namby pamby declarations of trust.

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to johngroganjga
19th Feb 2018 08:58

My understanding is that a declaration of trust is the standard way of passing ownership to a spouse. Is a full blown legal transfer required given the ambiguity of who is transferring what?

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to chrisacc1985
19th Feb 2018 09:19

There is no ambiguity unless it is introduced by an absence of a clear documentary trail. How the transfer should be effected is the first question the solicitor instructed should be asked to advise on. I would stop trying to second guess what the solicitor will advise and get on with it.

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Hello Chris, Its going to be hard to provide an abstract answer to questions relating to the transfer of beneficial interest in properties. We do work with a great barrister who could help you achieve this objective. While we have been able to transfer property from Individual names into companies, the transfer of beneficial interest between married people have some legal procedures to be followed.

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19th Feb 2018 14:19

I disagree with John, that a transfer of legal ownership is required.

As the OP notes, legal ownership only permits the legal owners to be joint tenants, and there is already a trust in place, which makes the legal owners the trustees for the two brothers, as tenants in common.

Where I do agree with John is that if the brothers each separately advise the trustees (them) of their wishes for each of them to transfer half of their respective interests to their respective spouses, and the trustees then instruct a solicitor to give effect to those wishes, then the resulting documentation will have the required effect.

The previous poster is just a clown IMO.

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20th Feb 2018 20:21

As a point of information all that is required for an effective transfer of the ownership of land in England and Wales is a deed i.e. a written document where the signatures to the deed are witnessed. A declaration of trust is such a document, if executed correctly, as is a partnership deed. Registering the legal title at the Land Registry in the names of joint owners is a separate administrative matter. It was not always essential for title to be registered in the names of all the joint owners, although I believe it may be required now where there are four, or fewer, owners. See link at
https://www.gov.uk/registering-land-or-property-with-land-registry
It is not possible to register the names of all the joint owners where the number of joint owners exceeds four.

In practice a solicitor will usually use Land Registry form TR1, which is signed as a deed and registers any change of ownership with the Land Registry. The TR1 will also record whether the land is held as joint tenants or tenants in common.

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to michaelblake
20th Feb 2018 20:09

Thank you Michael. I cannot, however, find any reference of the requirement to register title in the names of all joint owners if there are 4 or fewer owns in the link that you provided.

Are you certain that this is the case? If so, it would seem odd that this isn't mentioned in any of the other guidance I have read so far. (Bloomsbury/Ross Martin)

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to chrisacc1985
20th Feb 2018 20:20

I thought it followed from paragraph 3 , viz "You must tell HM Land Registry when you change the registered owner of your property, for example if you’re transferring it into another person’s name, or if you want to add your partner as a joint owner." but it is a legal point and I do not pretend to have any legal training in these matters. The solicitor would be able to advise. On advantage in all joint owners being registered on the title is that, as I understand it, the Land Registry will advise them of any claims against title or anything likely to affect the title adversely.

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to michaelblake
20th Feb 2018 20:11

DUPLICTAE

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to chrisacc1985
20th Feb 2018 20:10

DUPLICATE

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