Tax on the transfer of property equity between two brothers

[theg17]

Hello
The property is a flat in London. It was bought by the parents in the 1990s. The 'family understanding' was that beneficial ownership was shared 50-50 between two brothers. However, only the name of brother 1 was put on the property title. The property has no mortgage.

Brother 1 is non UK resident.
Brother 2 is UK resident and has lived in the property since 2000. He is considering a homeowner's loan as a way of paying off some of his credit card debts which are incurring significant interest.
Brother 1 agrees with brother 2's plan to get a homeowner's loan.
No money would change hands between the brothers.

What are the tax implications (CGT, SDLT etc) of changing the legal documents to show the brothers as jointly owning the property?

Are there any other tax and legal implications worth noting? (e.g. inheritance implications? - they both have children and might want to take further homeowner loans or sell the flat in the future).

Thank you in advance

[pawncob]

Is there any documentation to support the existence of a bare trust? Any evidence of the family understanding?
If not, then B1 is disposing of a half share in the property at market value and will pay SDLT, and CGT on the gain. As it's a gift, it will be a PET and part will remain in his estate for seven years.
His liability depends on where he is domiciled, not just whether he is resident in the UK. If he's not domiciled in the UK and he's not resident and not ordinarily resident then there is no CGT liability.

[bd6759]

This is a gift, so no consideration is involved for SDLT.

For CG purposes it is disposal at market value.

[maths]

Adding Brother 2 to the legal title incurs no CGT or SDLT.

The issue is whether any explicit declaration of trust exists under which Brother 1 confirmed he held the legal title on trust for himself and Brother 2.

If not and assuming no other supporting evidence then a transfer of beneficial interest by B1 to B2 incurs a CGT charge but only with respect to any gain since April 2015 as B1 is non-resident.

[theg17]

Thank you for your replies.

Could you please clarify what would count as evidence to confirm the existence of a bare trust/ the family understanding?
The parents or brother 1 could confirm this now. Would that be of any use?
Would this evidence need to date back to when the property was purchased by the parents in the 90s?

Brother 1 is a Greek citizen and lives in Greece. He's not domiciled in the UK, he's not resident and not ordinarily resident.

[etf]

As Maths has pointed out, even if an individual is non-UK resident, UK CGT has to be considered where there is a disposal of UK residential property after 5 April 2015. The disposal must first be reported within 30 days of the conveyance on a NRCGT return and again on a self assessment tax return if the individual already completes annual UK tax returns.

In my opinion, for taxpayers working in locations on the other side of the world, the 30 day reporting deadline can be wholly unrealistic given that paperwork required to complete the NRCGT return is usually situated in the UK. This also of course, assumes the taxpayer is aware of the 30 day reporting obligation in the first place.

One hopes HMRC will initially take the "softly, softly" approach they are promising for MTD taxpayers before issuing late filing penalties for NRCGT returns.

etf

[pawncob]

A signed and dated memorandum of understanding would be ideal, but any written acknowledgement of the position would suffice. It must evidence the situation when the property was transferred by the parents to B1 with B1 stating that he holds the property in trust for himself and B2.

[theg17]

So, if I understand correctly -

If the parents and B1 have a memorandum of understanding or a letter which they signed when they bought the property in B1's name then this is enough evidence that B2 is the 50% beneficial owner and therefore CGT and SDLT are not incurred.

The above evidence with today's date would not be accepted as proof of B2's beneficial ownership and therefore B1 would incur CGT and SDLT upon legal transfer of 50%, but only with respect to gain from Arpil 2015. In this case the transaction is considered a gift.

In both cases B2 gets his name on the title and can apply for a homeowner's loan, but at different cost.