Apologies if this is a dumb question, but I am a simple tax adviser. I am looking at a case where the owners of a property portfolio are considering incorporating the portfolio and have been advised to transfer the property by way of a “letter of trust”. I assume what is meant is a deed akin to one that is widely used where property is held in joint names. this is all hypothetical at the moment, so the beneficial interest can be passed to the company in whatever form is decided works best. However, my question is doesn’t that declaration of trust create a bare trust? Conversations around this topic imply that the declaration of trust is something completely different from a trust. If it’s not a trust why isn’t it called something like a “memorandum of understanding”?
Never heard of a “letter of trust” but the beneficial ownership could presumably be transferred to the company by a short declaration of trust by which the legal owners declare themselves nominees for the company.
It’s a new one on me too, but everyone seems to have a different way of describing things. Am I right in thinking that Nominee for the company is still a bare trust legally?
Yes; you can draw some distinctions in terminology (you wouldn’t expect a nominee to have discretionary powers of investment) but they are the same for tax purposes.
I assume that Paula and Andrew have a good understanding of what they do for a living. So that suggests to me that the people suggesting the incorporation do not particularly understand what they want to happen. That gets my spidey senses going.
Now that might be just me being suspicious. But of a lot of people have ended up in a pretty poor place with “advisers” suggesting that they incorporate their property portfolio in a way that (i) might amount to mortgage fraud, and (ii) have lots of unexpected and unexplained tax consequences that a competent adviser would have been well aware of.
Here’s an example: Property118: default your mortgage and pay £££ in tax That’s one where HMRC were so impressed that they issued a Stop Notice which makes it a criminal offence for that particular adviser to promote it. But they are not the only people doing this sort of thing.
Obviously I do not know the full background to this and your spidey senses may be completely relaxed.
I am with Tigger on this. “Incorporation” of a property portfolio is the corporate equivalent of the private client wonder wheeze of settling your main residence into a useless trust.
CG65715 indicates that HMRC will accept on appropriate facts that a professionally managed property rental activity is a “business” for CGT incorporation relief, but there is no corresponding relief for SDLT and no wonder wheeze for achieving the desired purpose by using trusts, whether bare or fully clothed.