John R
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Enquiry - rental property for parent in son's name

Enquiry - rental property for parent in son's name

My client, a higher rate taxpayer, has several buy to let properties. A few years ago his mother, a non-taxpayer, wanted to acquire such a property but as she was unable to raise a mortgage, my client purchased it with the aid of a mortgage in his name. The rent has been retained by the mother and the mortgage paid by her. Apparently she has declared this on her tax returns. The Revenue have enquired into this arrangement and seem to be suggesting that the rent should have been included on my client's return. My client said that the whole family know about this arrangement (shame nobody told me!) and that all concerned feel that the property belongs to mother and that she is responsible for the mortgage. However, there is no documentary evidence, deed of trust, etc.

Can anyone provide case law or other advice that may assist me in defending my client's position.

Would it help if affidavits were obtained from all parties, setting out their intentions and should a deed of trust now be prepared confirming the beneficial ownership?


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02nd May 2012 18:06

Just wondering

When your client applied for the mortgage did he spell out to the lender that he was purchasing for his mother?  If he indicated that he would purchase the property to own himself then I am starting to feel nervous about the possibility that he may be guilty of mortgage fraud!

The conveyancing solicitor who acted in the purchase may still have his file.  What does that say about what he was told by the family about the purchase?  Producing that information to HMRC might (or might not!) help your client.

Thinking ahead to the sale of the property or the mother's death, what are the CGT / IHT implications.  If mother died would the family be happy for the property to be included in her estate for IHT purposes?  To whom would it pass under mother's will?


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03rd May 2012 08:45

Beneficial ownership

If the property is in England then English law recognises a distinction between beneficial and legal ownership and this does not necessarily have to have an explicit deed of trust. The fact that the mother has paid all the mortgage repayments and that all the family including the legal owner consider her to be the beneficial owner are significant. 


I would imagine that HMRC officer is thinking this was a convenient arrangement after the event. Can you show that the mother spent any excess of rents over mortgage on her own personal needs - presumably no suggestion she passed it back to the son? And as David says what would happen if she died - cannot have your cake and eat it - if it is hers now then it will be in her estate when she dies with any consequent IHT/CGT.


Who takes out any insurance for the property and deals with e.g. gas and electric certificates? Who bears any running expenses when the property is not let and who pays for repairs? 


I would endorse the suggestion of tracking down the original solicitor to see if they were aware of the intention and if so what if anything they advised. Most likely neither they nor the mortgage company were aware...........



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03rd May 2012 11:15

I think i would go along the same lines

as Anthony123......if the mother is incurring all of the costs (repairs etc as well as paying the mortgage) then this does (in the absence of any other documents) suggest she owns it (I am no solicitor though)


My other thought was how did the revenue find out that the mother didn't own the property.....did they ask for the deeds?  

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By John R
03rd May 2012 11:52

Thanks for your helpful comments which I shall bear in mind when I next speak to the client.

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By blok
03rd May 2012 12:45

. my mistake.

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