A client wants to give a property to her daughter whilst at the same time retaining the right to manage it and receive the rent paid by the tenants. Her only purpose is to ensure that the property vests immediately in her daughter on her death. She understands that the property will still form part of her estate for IHT purposes. Basically she will be creating a bare trust.
The property is not her residence so the extra IHT relief for homes passing to children isn’t relevant. The only issue therefore is whether CGT is payable on the gift. My memory is that it isn’t given that she will retain a 100% beneficial interest in the property, but I am doubting myself and would be very interested to know what other (wiser!) people on this forum think.
“Her only purpose is to ensure that the property vests immediately in her daughter on her death”. Whose death? The mother’s death or the daughter’s?
Is the mother planning to make an effective transfer during her lifetime or only on her own death? The latter kind of transfer would be testamentary and need to be executed as would be a Will.
The actual plan is not clear to me as to who will own the legal and equitable titles after the gift though it sounds that the mother will at least retain the legal title so she can collect the rents. Who is intended to be equitably entitled to the rents. If the mother, what exactly is being gifted to the daughter?
Without knowing exactly what is planned the taxation outcome is not predictable.
From my reading of the query it seems the client wishes to bring about joint ownership of legal title only so that that is “inherited” by the daughter as surviving legal owner immediately on clients death without waiting for probate. This will create a non exempt property Co ownership trust in the meantime as there is no transfer of beneficial interest contemplated prior to client death. The point at which the beneficial interest will vest in the daughter after client death will depend on the drafting of the gift of the beneficial interest in the will, estate liability for IHT etc. What is the reason for wanting quick vesting?
Apologies, I had misread the query to be proposing adding the daughter as joint legal owner not sole legal owner. But would that not meet the need with the relevant declaration of the 100/0 beneficial split and the appropriate restriction on title to protect the Mothers financial interest?
If the plan is to put the property into joint names so mother and daughter own the legal title as joint tenants the question arises: is there an immediate transfer of any part of the equitable interest? If the answer is No then is there an intent that it should transfer at some future date? If so what is the legal mechanism intended to secure that this happens? It’s land so some document is going to be necessary. Richard’s succinct post is spot on: what document is envisaged?
Joint legal title can avoid probate formalities but the equitable interest in the asset remains with the original owner of it and if the non-equitable owner is the survivor she is a sole trustee for whoever inherits the equitable interest under the will or intestate of the deceased equitable owner.
This can only be prevented by the equitable owner making a written transfer in lifetime or a Will complying with WA 1837. The two individuals in the OP have not discovered a wizard wheeze for transferring land from one to the other, merely by putting the legal title into joint names, which contributors on here have been overlooking all their professional careers.
Not being of a charitable disposition I venture to wonder whether a key feature of this magical device is to facilitate the ability to assert which of the two is the true owner of the asset as and when may prove convenient.Do not pass Go, Do not collect £200.
I once had an ex-client who ceased to be my client when he answered wrongly a vital question. The question was: how many properties do you own? The answer was: how many properties should I own?
If she retains a right to the income then this won’t be a bare trust. It would be an interest in possession trust for the mother.
The alternative would be a bare trust for the daughter, with the daughter agreeing informally that the mother is allowed to manage the property and retain the rent for so long as the daughter agrees.
Either way, there will be a disposal for CGT.
Plus, the trust needs to be registered under TRS (potentially it will also need a UTR too).