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Where Taxpayers and Advisers Meet

SDLT relief for first time buyers - bare ownership of property in France

re34256
Posts: 2
Joined: Sun Jun 10, 2018 8:13 pm

SDLT relief for first time buyers - bare ownership of property in France

Postby re34256 » Sun Jun 10, 2018 8:26 pm

Hi guys,

This is another “are we first time buyer” topic. My girlfriend and I want to buy our first property and I’m checking whether she is a first time buyer ( as I am ).

Her parents gifted their children the bare-ownership of properties in France to their children about 12 years ago. She has a third of that bare-ownership. The parents retained the “beneficiary ownership” (the usufruct). That means the bare-owners cannot perceive rental income, use the property as their residence, nor do they pay the land tax on it. They can’t sell it the properties either unless the beneficiary owners agree to it (and they would retain ~50% of the sum, it depends on their age). The purpose of this setup is for inheritance: upon both parents deaths, the full ownership is immediately transferred to the children, and the properties won't be part of the estate.

With regards to HMRC’s definition of a first time buyer, as per guidance (https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note), I am hoping she falls under the wording “must not, either alone or with others, have previously acquired a major interest in a dwelling “: given there's hardly anything she can do with the property, I was hoping this would not consitute a major interest.

Alternatively “Relief is not denied by virtue of a previous acquisition as a trustee unless the purchaser was also a beneficiary of the trust.” Could it be constructed this is situation is very similar to a trust and would HMRC assimilate it to that?

Do you think we have a chance at being eligible for stamp duty relief? Additionally, how will our solicitor approach this? Is this something we need to get clarified from HMRC’s perspective? Would a consult with a solicitor be of help in order to get clarifications on this? As we’re looking to buy just under 500k in London, the sums at stake are pretty big:/

Thanks for the help!

SDLT Geek
Posts: 118
Joined: Sun Apr 30, 2017 5:45 pm

Re: SDLT relief for first time buyers - bare ownership of property in France

Postby SDLT Geek » Wed Jun 13, 2018 5:55 pm

The issue here is the meaning of “major interest”. It is clear in England that owning a freehold or leasehold property is a major interest. HMRC say that having a share in such a property is also a “major interest”. For overseas properties one has to see if the interest is an equivalent interest.

You might need some advice on the French legal position, but it might be that the equivalent interest is not a share of a freehold interest. It might be closer to a reversionary interest in an English trust. The latter would not “count against” your girlfriend. There is some information here about first time buyers relief:
https://www.blakemorgan.co.uk/news-events/blog/sdlt-first-time-buyers-relief/

re34256
Posts: 2
Joined: Sun Jun 10, 2018 8:13 pm

Re: SDLT relief for first time buyers - bare ownership of property in France

Postby re34256 » Fri Jun 15, 2018 10:28 pm

Many thanks for the very interesting link. It's interesting to read that we might also be slapped with the additional 3% in some cases although I think this would probably not apply to us as her shares' value would actually come under the 40k threshold. In any case, you've confirmed we're beyond internet self-help and we'll need to involve the solicitor early on this.

maisonthaury
Posts: 2
Joined: Mon Jun 18, 2018 3:41 pm

Re: SDLT relief for first time buyers - bare ownership of property in France

Postby maisonthaury » Mon Jun 18, 2018 4:20 pm

My husband and I gifted the value of ~80K euros to each of our two children in 2014, retaining the usufruct, little knowing that it would disadvantage them when the law changed and it came time for them to buy their own houses as first time buyers. Having reluctantly accepted that the "donation" has qualified them as having a major interest (value over £40K) in a property, we were stunned to hear that the entire value of the French house (~250,00 euros) may also be considered as part of our own UK estate for IHT purposes when we die (we are UK residents). My question: is this double taxation? How are the children (as "bare owners") liable for increased SDLT when we will be considered as holders of the whole value of the house for IHT? Who would determine if their holding is a reversionary interest or part of a freehold?? Many thanks!

SDLT Geek
Posts: 118
Joined: Sun Apr 30, 2017 5:45 pm

Re: SDLT relief for first time buyers - bare ownership of property in France

Postby SDLT Geek » Tue Jun 19, 2018 11:35 am

I would be interested to hear who advised that a reversionary interest behind a usufruct is the equivalent of a "major interest" in English SDLT law. I have been aware of this as an issue, but have not seen a firm view expressed on it. Was an opinion obtained from someone well versed in English and French property and trust law?

From my limited understanding of what a usufruct is I had hoped that it might be fairly similar to a life interest under a settlement in English law. I believe that is consistent with the inheritance tax treatment you mention, but not with the SDLT treatment.

maisonthaury
Posts: 2
Joined: Mon Jun 18, 2018 3:41 pm

Re: SDLT relief for first time buyers - bare ownership of property in France

Postby maisonthaury » Tue Jun 19, 2018 12:07 pm

Apologies - my message has confused two separate issues. The reversionary interest is usually (we do have an opinion about this) deemed to be the same as the usufruct (although the Scottish "liferent" is also mentioned on some sites). My question really has to do with the double taxation issue and whether it is worth pursing a ruling from HMRC. Is there an argument that our children (first time buyers) cannot be liable for both increased SDLT because of their perceived ownership via the "donation" and yet also will be liable as our heirs for IHT charged on the whole value of the house when it passes to them. It appears that for IHT purposes, we will still be seen as the owners. Thank you for your comment and sorry for the confusion!


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