We have a client who has been in dispute with his mother and brother for a long time over whether or not he has an equitable interest in his mother’s home. He put cash in towards the purchase and we have calculated that, based on this he should have a beneficial 59% share in the property. He also put more cash in at a later date. The property is registered in his name because his mother couldn’t get a mortgage and he could. He and his wife have been paying the mortgage interest. Mum and brother have been maintaining that this was all a gift. Anyway, our client is now fed up with the whole thing and is prepared to transfer legal ownership to his mother, subject to the mortgage.
If he has a beneficial interest in the property, then he is disposing of this at quite a substantial capital gain. I have calculated CGT to be around £25k. I have been asked whether, if he were to agree that there was never any intention that he was to have a beneficial interest, would HMRC accept that he therefore has made no chargeable gain. Instinct tells me that, because he contributed to the purchase and has been arguing that he does have an equitable interest, then the agreement sounds like a fiction to get around the tax.
I would really appreciate members’ thoughts on this.
No-one appears to have picked up on this thread so I thought I would chuck in my halfpenny’s worth as it raises some interesting issues to my mind.
As a preamble, I did wonder how it was that the mother’s situation had changed such that the mortgagee is now prepared to let her take over the debt – would the alienated son have to stand as guarantor I wonder?
The other item that comes to mind is that if this were to be construed as a simple investment from outset by the alienated son (accruing a zero yield), then would there not be a significant rental loss accrued from all the mortgage interest paid to date – can this be used elsewhere?
Also, when considering the value of the property, has account been taken of the fact that there would appear to be two sitting tenants in residence? The fact that one of these is probably relatively young might mean that the gain in value since purchase is minimal.
One problem with any planning would appear to rest with the mortgage that exists and the impact that this will have upon any transfer of interests in the property in an attempt to reduce/avoid the CGT charge. There is also the matter that the debt represents consideration as far as a transfer is concerned (and hence SDLT).
In the absence of the charge, would any of the following mechanisms be possible:
An initial transfer (of at least the beneficial ownership) into the joint names of the alienated son and his spouse in order to avail two annual CGT allowances upon transfer to the mother.
A transfer into a discretionary trust with a holdover election (because it is a lifetime chargeable transfer).
A transfer of the beneficial interest in tranches over, say a couple of tax years so as to bring further CGT allowances into play.
My understanding is that a charge can be isolated to a specific beneficial interest in a property, but whether this could be engineered in this instance and whether the lender would be happy with it I’m not sure – perhaps under the trust route, the trustees could sign some form of waiver in favour of the mortgagee or perhaps the trustees and the mother take over the mortgage jointly?