My client’s wife is legal title owner of a property and they wish to make use of both their AE for CGT purposes. Due to timing issues and a restriction (mortgage) in favour of the bank, they do not believe they can change the title in to joint names before exchange.
The normal option would be to put a deed of trust over the property but with the bank restriction this may not be possible (I seek guidance on this) so client has suggested a trust over the proceeds. I’m not certain that this works for CGT as his entitlement will be to cash after the sale.
The deed of trust transfers the beneficial interest only. You can execute this today without unsettling the land registry and broadly the mortgage company does not need to be notified.
Some mortgage contracts require any transfer including beneficial to be notified so careful reading is required.
No CGT problem. Nil loss Nil gain. Spousal exemption.
SDLT is an issuse which technically maybe payable on the mortgage amount. Or 50% of the mortgage amount - any reliefs.
Not sure about the trust suggestion. I assume your have the same issues.
Typically the mortgagee would, under its terms and conditions, require notification of any change to the legal title and in many instances changes to the underlying beneficial interests even though in the latter case their security is not threatened. Check terms and conditions.
With respect to CGT a person is exposed to a CGT charge only were the person makes a disposal of assets on which a chargeable gain accrues [TCGA 1992 s 1] (in the current case where wife executes a declaration of trust under which she declares that she holds the legal title, say, beneficially for herself and husband 50/50 a disposal occurs but no chargeable gains arises due to the inter-spouse exemption; TCGA. 1992 s58).
In the absence of a declaration of trust the suggestion that a trust of the proceeds of sale be set up will not cause any disposal by the husband for CGT as he has not made a disposal; he holds no beneficial interest in the property of which he is able to dispose.
Under the declaration of trust option SDLT is only payable if there is chargeable consideration. Chargeable consideration can be avoided by ensuring that the husband does not covenant either to pay the mortgage or indemnify the wife in respect of it.