House purchase for Son

[treborJ]

House purchased for Son 10 years ago with £50,000 from Son, and gift of cash from his Mother and I.
For the balance his Mother and I took out a mortgage on the property over 10 years, which has just been redeemed. Title deeds had to be in our names to obtain the mortgage. Now transferred to Son, as agreed when purchased.
He has lived there ever since purchase date.
Paid ALL bills, including rates etc. Paid for ALL maintenance and repairs.
Never paid any rent.
He has always known it was 'his' house.
If he were to sell it all proceeds would be his alone.
If he were to sell would he be deemed the Beneficial owner and be allowed PRR on any increase in value.
Thank you

[AGoodman]

There are two possibilities here, based on the underlying beneficial ownership. It is clear that he is now the owner and occupier so PPR will apply from the date he became the legal owner and on a sale. The only issue is with the transfer to him. Tax ignores legal ownership (ie the register) and looks to the beneficial ownership but, in the absence of any evidence, beneficial will follow legal ownership.

The options are:

1. (The bad one) is that the property was at least partly yours until you transferred the title to him. In this case you would be liable for CGT on the gift to him (market value on gift vs purchase price) based on your respective shares (he should have a share from his £50,000 contribution and any mortgage payment). You appear to have agreed that the property would be his from purchase but, if called upon, do you have anything to demonstrate this - ideally a declaration of trust but, if not, did he also pay the SDLT and all the mortgage? If he at least paid all the mortgage then you should have a fairly strong case to say that he was the beneficial owner, in which case:

2. (The better one) - he has been the beneficial owner from day 1 and so the transfer to him was irrelevant for tax and any future sale by him will qualify for PPR.

[treborJ]

Hi,

Thank you for your response.

Since posting, I have found this:-

HMRC listed a number of factors in the above case, which are taken into account by HMRC in assessing whether a beneficial interest is held by a third party. The tribunal in the Lawson case considered these factors in reaching its decision in the taxpayer’s favour. These factors (which are also listed in the Capital Gains Manual at CG70230) are:
1. Legal title; Was ours until Mortgage was redeemed
2. Occupation of the property; 100% our Son
3. Receipt of any rental income; No rent was paid
4. Provision of funds to purchase; and Son contributed £50,000 from Grandfather inheritance, balance from us, his parents
5. Receipt of sale proceeds on disposal. 100% to Son

HMRC’s guidance states that no single factor is determinative, and that each case must be considered in the light of its own particular facts. Nevertheless, applying the same factors as HMRC may be helpful in cases where beneficial ownership is in doubt.

Many thanks for your opinion.
Best regards