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Where Taxpayers and Advisers Meet

Tenants in common and unequal shares of ownership

langtonbrow
Posts:64
Joined:Tue Mar 10, 2009 1:52 pm
Tenants in common and unequal shares of ownership

Postby langtonbrow » Sun Nov 05, 2023 12:27 pm

Hello,

As an only child our property was owned by my mother and late father. My fathers estate was allocated into a discretionary will trust, including 50% of the property.
I subsequently bought 50% of my mothers share such that we each owned 25% and the trust, 50%, as tenants in common. We live there and combine our finances.
The property has subsequently been invested/redeveloped with differing additional funds invested from my mother (higher amount) and myself (lower amount).
The result is that the ownership of the new property based on sources of funding is now significantly less than 50% to the trust, resultant from new money entering the equation.
Two questions, 1) is this an acceptable perspective and 2) how can this be demonstrated to HMRC satisfaction in the event of a future nil rate band consideration under IHT rules?

kind regards
L

someone
Posts:696
Joined:Mon Feb 13, 2017 10:09 am

Re: Tenants in common and unequal shares of ownership

Postby someone » Mon Nov 06, 2023 9:47 am

Ask a lawyer...

You ideally need a Declaration of Trust setting out who owns what in what proportion. (I would guess there already is one and it needs varying but I don't think there has to be one provided all the beneficiaries are listed on the title as legal owners.)

There is absolutely no problem from an HMRC point of view to owning a property in "odd" proportions. There is a legal question as to whether your investments in the property allow you to assume a greater share of the property but that's irrelevant to tax. A very tightly written discretionary trust, for example, might mean it's impossible for the trust to do anything other than own 50% of the property. (unfortunately, trusts do sometimes get written like this "for protection" - I know of one property that was inherited by a very young minor, there was nothing anybody could do - and by the time the child was old enough to take possession, it was derelict and sold for next to nothing. It wasn't quite "demolish and rebuild" but it was close to it)

An express trust (a written trust) is proof of who owns what in what proportion. This is evidence for HMRC purposes. Note that it's not possible to backdate a trust but it is possible to write a DoT that documents a historical change. I don't know what the precise wording would need to be.

langtonbrow
Posts:64
Joined:Tue Mar 10, 2009 1:52 pm

Re: Tenants in common and unequal shares of ownership

Postby langtonbrow » Tue Nov 07, 2023 9:14 pm

Hello there

Thanks for replying. Yes I could ask a lawyer I suppose.

I think the declaration of trust was simply to identify what was in the will. eg clearly written as 50% of the property. The modified proportions to others have been realised after this and are recorded elsewhere, ie in my transfer of the value of 1/4 of the property to my mother and the addition of my name on the title deeds. As the ownership is tenant in common then this seems in line with protocol.

As my investigation is for eventual IHT reasons then perhaps it doesn't matter who has put what into the house, especially as it was over 7 years ago. The salient calculation is probably my mothers share being <£175K for residential nil rate band, or if over this, the IHT implications together with the rest of the estate. Under this circumstance I wonder if my mothers unequal (higher) contribution could be regarded as a PET at the time, with this discounted against her 25%.

I suspect the answer will be largely unknown and subject to case law interpretation which will cost me an arm and a leg to uncover. Perhaps safer to hope that house price growth is limited, reducing the state tax claim. This seems like a safe bet presently.

Many thanks for provoking some thought
L.


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