Declaration of Trust for rental property

Can client draft their own DoT?

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Husband has owned rental property since before marrying. The couple now wish to split rental income and subsequent CGT liability 50/50.

Husband has obtained his own of Declaration of Trust (DoT) template and wishes to complete this without a solicitor and without registering with Land Registry (1. to save legal fees and 2. to avoid complicating a re-mortgage already in process, in his name only).

I believe this is fine and will acheive their objectives for tax - but just wanted to check with others.

Summary: Couple draft their own DoT, have it witnessed but not registered with Land Registry, and future tax treatment is 50/50.

Also, am I right to think there's no need to complete form 17 due to the aim being to split income equally rather than unequally?

Replies (8)

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By ireallyshouldknowthisbut
18th Jul 2022 16:29

The Form 17 is not required, assume its legally joint in any ratio HMRC will assume its 50/50. Form 17 is used to rebut this assumption.

I cant comment on the legal bit but I would be concerned about the evidence trial here if doing a DIY agreement, but I guess its at your client's risk. I certainly would be putting a big fat disclaimer in my letter with " ask a lawyer" in it. And "breach of mortgage conditions" might feature too.

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By The Dullard
18th Jul 2022 22:58

Form 17 only applies where the property is in joint names.

Agree with the above that there might be a breach of mortgage conditions. However, from discussions with a lender via an FA it seems as though their preference is just to not know about it, so that they can comfortably ignore it in the event of default.

HMRC provide a sample deed of trust in their Trust and Estates manual at TSEM9520. So, I assume that they would be happy with something drafted according to their wording.

Note though that if it is in just one of their names, the trust will need to be registered with the trust registration service from 1 September, as it won't fall within the exclusion described at TSRM23050 in those circumstances.

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Replying to The Dullard:
By ireallyshouldknowthisbut
19th Jul 2022 12:05

Good point on the trust registration. Enough reason alone to just change it with the land registry rather than pull your teeth out with that one.

Usually the path of least resistance is to do it when you re-mortgage. Not least if you try and be clever when the mortgage company ask for your personal tax return when it is time to do so, you have to explain why the rent is half what you said it was.....doing things properly is so dull mind. People seem to enjoy constructing complex arrangements instead.

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Ivor Windybottom
By Ivor Windybottom
19th Jul 2022 09:14

I don't know the answers, but I would be concerned about:

(a) is there a risk that mortgage fraud arises - i.e. not telling the lender that you have transferred their security to another party?

(b) SDLT - it is suggested that joint owners of a mortgaged property are equally liable to settle the debt and, if so, consideration will arise for SDLT purposes and this may trigger a liability.

These two may be alternate options in that if (b) applies then maybe (a) is not in point, and conversely if (a) applies then there is possibly no consideration for (b), but I would still be concerned about holding knowledge about this situation without taking action to at least review this (or making the appropriate AML report).

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By Justin Bryant
19th Jul 2022 09:37

Of course they can*. After all, this is a free country (just about still). No mortgagee will be bothered in practice as they are of course secured and see here also:

https://www.accountingweb.co.uk/any-answers/interesting-mortgage-fraud-s...

SDLT on any debt is easily avoided with careful drafting of the DoT.

As mentioned above, form 17 is totally irrelevant unless it's legally jointly owned.

*You can even do your own conveyancing, which can involve a DoT of course:

https://www.lawsociety.org.uk/contact-or-visit-us/helplines/practice-adv...

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Replying to Justin Bryant:
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By Hugo Fair
19th Jul 2022 11:59

"*You can even do your own conveyancing" is probably one of the best kept secrets (that most solicitors won't admit to knowing).

The Legal Services Act 2007 only lists the following as 'reserved legal activities':
* the exercise of a right of audience in the courts,
* the conduct of litigation,
* reserved instrument activities,
* probate activities,
* notarial services, and
* the administration of oaths.

Whether you would be advised to undertake your own conveyancing (and whether the mortgage provider would approve) are of course entirely different matters.

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Replying to Hugo Fair:
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By Tax Dragon
19th Jul 2022 12:13

LSA doesn't stop DIY - it criminalises (eg) accountants dealing with legal stuff for clients. (Examples include drafting [trust] deeds, conveyancing and doing unlicensed probate work.)

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By clark.hall
19th Jul 2022 10:31

Can't thank you all enough for your very helpful replies. Certainly given me some specific avenues for research.

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