Setting up a Bare Trust: 3 Questions

[KarenFa]

Hello,

I have a BTL property that is still mortgaged (LTV under 50%). Can I create a bare trust to transfer 50% to my adult son, while keeping 50%
I would continue to pay down the mortgage over time, and at some point transfer the remaining 50%.

If this is doable, how do I report to HMRC that the trust has been created and do I calculate CGT on the 50% and report that as a sale?

[AdamS93]

Bare trusts are basically transparent for tax purposes - you would treat this as a gift of 50% of the property to you son.

Yes, CGT will need to be considered as well as SDLT due to the fact there is a mortgage.

[AGoodman]

Best to take proper advice but SDLT should be fine provided the mortgage is staying entirely in your name. It would be different if your son was becoming liable for it.

Also bear in mind that the declaration of trust may be a breach of your mortgage loan agreement (if treated as a part disposal - it depends on the wording) and will have to be declared if/when you remortgage as you will no longer be the 100% beneficial owner. At that point, a bank may insist on your son becoming liable for the debt.

No separate need to register the trust as there is no need/duty to register bare trusts.

[maths]

The transfer of the 50% (albeit by gift) is a disposal for CGT purposes. It would be reported on the Supplementary CGT Pages of your Tax Return.

Any gain would be based on MV at date of gift.

No need to report the declaration of trust to HMRC unless they ask for it.

[Feedback]

isn't holdover relief available on the transfer as per s260 TCGA?

i appreciate this is a bare trust and my knowledge is limited.

[AGoodman]

No, because it is not an immediately chargeable transfer, it is a potentially exempt transfer.

If you want holdover relief then you will need to make the gift to a full trust (discretionary or interest in possession). This will be a chargeable transfer so you will likely need to file an IHT100. You should definitely get proper professional advice as that is much more complex affair - both immediately and on going.

[maths]

What are you trying to achieve?