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Where Taxpayers and Advisers Meet

Purchased property for someone else overseas

jsonanddan
Posts:1
Joined:Mon Oct 09, 2023 7:58 pm
Purchased property for someone else overseas

Postby jsonanddan » Mon Oct 09, 2023 8:30 pm

We wanted to buy a house here in Mexico but didn't have enough money, so our daughter who was working here, took a mortgage in her name and partially paid for the house. The house was under construction and the remaining amount was to be funded on completion. That took a long time. In the meantime she moved to the UK and immigrated there. At some point the house was built and I paid the rest of the cash amount. She signed the transfer letter and the possession of the house was directly given to me and in my sole name by the builder. All this happened when she wasn't even here.

After that she purchased a house in the UK taking out mortgage in her name there. Since she never had interest in or possession of the house here in Mexico, she declared herself as the first time buyer there. I do some accounting here so she has now asked me if everything was alright. I looked up UK law a bit and it seems it's OK. The price of the house here in Mexico was much below 40,000 pounds so there would be no extra tax liability even if she hadn't declared herself as the first time buyer. But even overall from what little i understood, given that she had no interest in the house for herself, never resided there, in-fact never even possessed it, it seems legitimate that she's the first owner/buyer of the UK house that she fully funded (down-payment and mortgage) and purchased for herself.

Should she be worried about anything here?

bd6759
Posts:4239
Joined:Sat Feb 01, 2014 3:26 pm

Re: Purchased property for someone else overseas

Postby bd6759 » Tue Oct 10, 2023 8:27 pm

She is not a first time buyer if she held a interest in land that contained, or was to contain, a dwelling. She must have held an interest if she was able to mortgage it. The price is irrelevant for this relief, but may be relevant for the additional (3%) rate.

someone
Posts:688
Joined:Mon Feb 13, 2017 10:09 am

Re: Purchased property for someone else overseas

Postby someone » Wed Oct 11, 2023 9:26 am

She must have held an interest if she was able to mortgage it. The price is irrelevant for this relief, but may be relevant for the additional (3%) rate.
This isn't true:
https://www.barclays.co.uk/mortgages/first-time-buyers/guides/joint-mortgages/
you can ask us about applying for a joint-borrower, sole-proprietor mortgage. This means that you can apply with someone who’s willing to accept joint responsibility for making mortgage payments without having a legal claim to the property.

Also - perhaps more relevant as this was a constructive trust (which appears likely to be the case for the OP too)
https://www.bailii.org/ew/cases/EWHC/QB/2019/1627.html

In particular:
Mr Tahir purchased the Property on 24 November 2006 in his own name for a purchase price of £219,000, funded principally by the Mortgage in a principal amount of £208,265. Mr Tahir was registered as the legal owner of the Property on 27 December 2006 and has been the registered legal owner at all relevant times since then. The Mortgage requires repayment during the mortgage term only of interest, with principal to be repaid at the end of the term. In other words, it is an "interest-only mortgage".
i) declared that:
a) Mr Faiz Ul Hassan Faizi, the respondent, is entitled to a one hundred per cent beneficial interest in the residential property at 3 Sutton Gardens, Luton, LU3 3AF ("the Property");
b) the legal title to the Property, currently held by Mr Tahir, is held by him in trust for Mr Faizi; and

I haven't looked at the legislation for first time buyer relief but this suggests that it's beneficial interest, not legal interest that is important:
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09815
Bare Trusts
Where an individual has absolute beneficial ownership of an interest in land but legal ownership is held by another person (as in a bare trust or nominee arrangement) the individual with beneficial ownership is treated for the purposes of Condition C as owning that interest [Para 3 Sch 16 FA 2003 and para 11(2) and (3) Sch 4ZA FA 2003]. This also applies where the beneficiary of the trust would be absolutely entitled but for being underage, or disabled, in a way that prevents them from being legally capable of owning property.

bd6759
Posts:4239
Joined:Sat Feb 01, 2014 3:26 pm

Re: Purchased property for someone else overseas

Postby bd6759 » Wed Oct 11, 2023 10:37 pm

I doubt it was a Barclays mortgage. It certainly wasn’t a joint mortgage.

The real question here is what she mortgaged. I presumed the land that was to be developed, but maybe not.

In Tahir v Faizi, Mr Faizi paid the deposit and agreed to pay the mortgage interest ( it was interest only). He didn’t do so, hence the need for court intervention. The court found that there was a resulting trust and the property belonged to Faizi because he funded it. You are assuming that is the case here, and that Mexico law would recognise a resulting trust: few legislatures do.

SDLT requirement is for a major interest, which I agree a trustee would not have.

someone
Posts:688
Joined:Mon Feb 13, 2017 10:09 am

Re: Purchased property for someone else overseas

Postby someone » Thu Oct 12, 2023 5:37 pm

I don't think it matters what she mortgaged, what matters is whether she had a beneficial interest in what was mortgaged.

The two points I were trying to make were that under English law:
a) liability to pay a mortgage does not require a beneficial interest
b) Owning the legal title of a mortgaged property (and named on the mortgage) does not require a beneficial interest

It's clear from the OP that the daughter paid the deposit, but not clear whether she paid the mortgage too.

I think any/all payments like this would have needed to be gifts or loans to the parents. I've just googled it and while Mexico does have a gift tax (actually it appears gifts are taxed as income), gifts between lineal descendants (both ways) are exempt.

So, in summary:
Provided that the daughter bought/part paid for the house/land for her parents as a gift and she never intended to have any rights to the house/land, all payments being gifts (or loans), then I don't think the daughter has done anything wrong under English law by declaring herself a first time buyer.

bd6759
Posts:4239
Joined:Sat Feb 01, 2014 3:26 pm

Re: Purchased property for someone else overseas

Postby bd6759 » Thu Oct 12, 2023 9:51 pm

Great. I shall now mortgage your house. Apparently I don’t need to have an interest in the house to do so.

someone
Posts:688
Joined:Mon Feb 13, 2017 10:09 am

Re: Purchased property for someone else overseas

Postby someone » Thu Oct 12, 2023 10:26 pm

a) sole proprietor, joint borrower mortgages.
b) https://www.bailii.org/ew/cases/EWHC/QB/2019/1627.html ibid

You won't be able to get a mortgage without (at the very least) the agreement of the legal owner. They are the only people who can agree to a charge being placed on the house (other than a court ruling).

It's the opposite issue that is at play here. Just because a trustee pays the mortgage, that doesn't give them any entitlement to the property.

We don't know in the OPs case whether the trustee paid the mortgage but even if they did it doesn't necessarily mean the trustee is a beneficial owner.


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