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What is the CGT if no change in beneficial owner?

Is CGT payable if a parent makes a child the legal owner of a BTL, but still receives all income?

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A parent wants to give her children legal ownership of some BTL properties, so that they may mortgage them and use the mortgage proceeds as deposits for their own property. What is the CGT position if the parents maintain full beneficial ownership (IE all income from the BTL?).

How would this change if the child were a 99% legal owner and the parents 1% legal owner - again if the parents were 100% beneficial owners from the rental income?

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By James Baddiley
17th Jul 2020 15:22

Sorry - just to add - there are no current mortgages on the properties.

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By Tax Dragon
17th Jul 2020 15:32

@ Justin, can I allege.... you know what?

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By Justin Bryant
17th Jul 2020 16:54

Surely if you are giving away an income right (which is an asset) in your property then that will come within the usual s17, 18 MV rules and so will have a (part-disposal) MV re CGT, so there will be a gain less the usual base cost allocation.

So this is trite CGT stuff re disposing of beneficial interests in assets.

A much more interesting question is how do CGT disposal rules work re constructive trust interests that have not yet been declared as such by a court per the case below? I bet no-one knows the answer to that!

https://www.bailii.org/ew/cases/EWHC/Ch/2020/1810.html

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Replying to Justin Bryant:
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By Tax Dragon
17th Jul 2020 17:13

TBH I didn't expect you to read my question, but you might at least have read the OP's.

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By Paul Crowley
17th Jul 2020 17:23

What kind of mortgage?

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RLI
By lionofludesch
17th Jul 2020 17:41

If the mother wants to keep the process, can she not mortgage the property herself and lend the money to her offspring ?

I assume these kids are already adult and this isn't some long term plan ahead scenario.

I dunno - it just seems more complex than it needs to be. Is there any intention to pass these properties on to the kids permanently or is it just a fund raising exercise ?

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Replying to lionofludesch:
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By Paul Crowley
20th Jul 2020 10:15

Similar thoughts
Children could not get a buy to let mortgage, Mum can

Really cannot think how else anyone gets a mortgage if all facts declared

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By richard thomas
19th Jul 2020 21:04

There is no CGT position because there is no change in beneficial ownership - s 60(1) TCGA 1992.

I do not comment on the idea of a person with bare legal title seeking a mortgage, presumably on the security of an asset beneficially owned by someone else and what the disclosure requirements are.

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Replying to richard thomas:
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By Tax Dragon
20th Jul 2020 07:56

richard thomas wrote:

I do not comment on the idea of a person with bare legal title seeking a mortgage, presumably on the security of an asset beneficially owned by someone else and what the disclosure requirements are.

Worth noting though that there are disclosure requirements and obtaining a mortgage without making those disclosures could be fraud. I read somewhere that fraud is a criminal offence.

My understanding of judicial process is... well, claiming any "understanding" would probably itself be fraudulent. But there have been a number of tax and other civil cases in which it would appear to me that there had been (or at least may well have been) mortgage fraud. The judges made whatever judgments they made without commenting on the question of whether such fraud had occurred. My question to you Richard, and I hope it's OK to ask, is: would a judge in a civil case ever make such comment, or is that 'outside the scope' as it were of the remit of the civil court, it being a criminal matter?

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Replying to Tax Dragon:
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By richard thomas
21st Jul 2020 10:53

I do not know about mortgage fraud cases but there have been many examples where judges trying civil cases have commented on what appears to be something criminal and then say they are referring the papers or their decision to the relevant authority. I did this myself in the case of Mohammed Kamran v HMRC [2019] UKFTT 257 (TC).

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Replying to richard thomas:
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By Tax Dragon
21st Jul 2020 11:29

Thank you, Richard. I will have a read and hopefully educate myself.

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By Tax Dragon
20th Jul 2020 07:28

James Baddiley wrote:

What is the CGT if no change in beneficial owner?

Is CGT payable if a parent makes a child the legal owner of a BTL, but still receives all income?

A parent wants to give her children legal ownership of some BTL properties, so that they may mortgage them and use the mortgage proceeds as deposits for their own property. What is the CGT position if the parents maintain full beneficial ownership (IE all income from the BTL?).

How would this change if the child were a 99% legal owner and the parents 1% legal owner - again if the parents were 100% beneficial owners from the rental income?

Sorry - just to add - there are no current mortgages on the properties.

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By Justin Bryant
20th Jul 2020 09:00

The question is not too clear and yes, unless you are giving away an actual beneficial interest in the capital of the property then s809AZA ITA 2007 would apply (to the transferred income), so that it's within IT, not CGT, for the transferor.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
20th Jul 2020 09:33

Have you still not bothered to read the question, which seems perfectly clear to me?

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Replying to Justin Bryant:
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By Tax Dragon
20th Jul 2020 10:01

As I read it, nothing is being transferred. Someone is setting up a bare trust over property in favour of themselves so that the bare trustee can use the property as security for a mortgage in favour of the trustee.

If that happens, then I don't see how the trust could (continue to?) be bare. So maybe after all there is a transfer of interest in the property and CGT is in point.

I'm rubbish at analysing the tax consequences of situations that the law did not expect to exist.

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By pauljohnston
22nd Jul 2020 10:53

Tax Dragons comment above sums up how difficult it is to provide advice. There is not sufficient information (figures would be helpful to start and also what legal instruments have been completed) and different tax professionals will view it differently having had all facts in front of them.

Gifting legal ownership would appear to be a disposal but what do the legal deeds say. 99%/1% would mean that the mother most likely would have to be on the mortgages but could receive all of the income because this creates a partnership. But as I said above not enough facts

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By dancingbubbles
22nd Jul 2020 18:22

OK I'm not an accountant or a lawyer so don't be too harsh if I get this wrong.

My first thought on reading the post was 'how are the children going to pay off the mortgages on the BTL without any of the income?' If they are paying it from their own personal income or some other stream then surely a mortgage based on that would be easier. If they have no visible income to pay off the mortgage then who is going to give it to them?

With regard to the actual question it seems to show confusion between legal ownership and beneficial ownership. My understanding is:

Legal ownership (name on the deeds) gives all legal owners the same rights so there is no 99% legal ownership.

Beneficial ownership can be carved up in any proportions and my understanding is that beneficial ownership of rental income is separate from beneficial ownership of sale proceeds. My reading of the OPs question is that parents want to transfer legal ownership and beneficial ownership of sale proceeds (without this there is no collateral to mortgage). This is a transfer of value and I’m sure this would be subject to Stamp Duty and probably to CGT. However I can’t reliably comment on CGT since the transfer that forced me to learn this had no CGT liability.

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