Purchase of Council Property

My client is a single parent who could not obtain a mortgage on her own in the 1980’s. She purchased her local authority property in 1989 (taking the benefit of the discount) and her son entered into the mortgage with her to enable the purchase to proceed. I can see from copy conveyance they bought in 1989 as joint tenants.

When making a new Will in 1998, the client severed the joint tenancy and they have held as tenants in common ever since. Son moved out around 6/7 years ago.

My client paid all of the mortgage payments but there is no evidence of a Declaration of Trust so the presumption is 50/50. Son would be happy to transfer most (if not all) of the property to his Mum but I have concerns about his liability to CGT.

Would you be able to argue that mother and son hold on trust for mother as to 100% of the equity? If so would a post event declaration of trust be possible to confirm the sequence of events?


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Yes, I believe so. The Declaration of Trust should have been put in place at the time, so there is always the small risk HMRC argue the son is gifting his share now in which CGT is payable. However, the counter argument would be that mother has paid for the property including the entire deposit, mortgage and all outgoings since purchase and son has never paid for the property and never regarded himself as beneficial owner. The property was only held in their joint names for the purpose of obtaining the mortgage and it was always held beneficially for mother.

If the legal transfer is not being effected now, then I believe the DoT should be registered with the TRS.

Ihsan Ali
I Will Solicitors Ltd

As the mother severed the joint tenancy in 1998, I suggest that undermines the argument that the property is held 100% in equity for the mother without the son making a gift back to her of his half share.

I wonder what was said/asked when she made her will as if severance was recommended by the will drafter it would seem that they either misunderstood, or were incorrectly apprised of, the true circumstances of the property ownership

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I did not draft the Will but my understanding is that it was put in place to afford her partner (in 1998) a right of occupation.

I would surmise this was the reason for the severance Paul. It was a free Will service offered by her Union so may have been taken at face value at that time?

Melkerts Solicitors

The severance does undermine the beneficial ownership being solely with mum. However, the fact that mum could not obtain the mortgage herself, paid all the mortgage payments and both mum and son (presumably) agree that the property is beneficially solely mother’s would, it is submitted, give credence to the property being solely mum’s.

Further, the circumstances around this severance are not particularly helpful either way. It is a bit of a catch 22. Does mum have more than one child? If so, I suggest that lends further credence to the beneficial ownership being with mum only, or else why would the son give up his half share, if he at any time thought it was actually his?

This is not an uncommon scenario and on balance, I would suggest more factors point towards this being solely mum’s as opposed to joint.

I agree with Ihsan but not, or at least not necessarily, that the severance is a problem. You can only sever a pre-existing joint tenancy in equity so it is a misconceived purported action in law. Like executing a TR1 of Tower Bridge. The gift of “her share” in her Will is another such. My slight concern would be that there may be contemporaneous evidence of any advice given to her which might indicates that she intended to make a gift to her son. That could be important in the event that her will was contested as, subject to the wording, it might well be necessary to advance the argument that “her share”, if so expressed, meant the whole which would not be a literal interpretation.

I take it the client is alive so could clarify that in a codicil or new will. It seems that at least the son would have no objection to denying he ever had a beneficial interest. So who could challenge; only those who could lay claim to succeed to his putative interest but not just the family but HMRC and a divorced spouse.

He could fix that by a disclaimer which would not be a disposal for CGT as no one can dispose of something they never owned in the first place (like Tower Bridge). His successors (and HMRC and an ex-spouse) could challenge that by arguing he had a prior benefit so a disclaimer was not on (he did reside for a while). Is there any one who is likely to challenge either the 100 % ownership or the son’s disclaimer? It is not feasible to rule that out absolutely because you cannot predict the future accurately much beyond current known circumstances; it s a famous “known unknown”.

The less likely a challenge is the less desirable a disclaimer is, as it muddies the water and gives another hostage to fortune. That goes also for a declaratory DOT. Just looking at HMRC what kind of case are they going to be able make out against 100% ownership without documentary evidence save for what exists. If after death the client files for IHT as owning 100% would they bother to challenge that if it would reduce the tax payable? They are not going to argue that an expired valid PET was made not later than when he moved out, even if initially a GROB.

You must fix the HMLR position to reflect sole ownership.

Jack Harper

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I think my concern would be that if, as is suggested, it was always intended that the property should belong wholly to Mum, does that not amount to a fraud perpetrated against the mortgage company? If I were advising HMR&C that would be my main line of argument in suggesting it was otherwise

We do not know exactly what the lender was told but why should we jump to the conclusion that the parties have acted fraudulently?

What we have been told is that the mother has paid all the purchase money etc etc. Presumably it was she that had the right to buy. I agree that it looks a racing certainty that she is 100% beneficially entitled. The mortgage company presumably has a first charge and two persons to sue rather than one. I imagine that as long as the the payments are duly made they are unlikely to be concerned.

The other dog that has not barked yet is the local authority vendor. Presumably it undertook due diligence to ensure that it was selling and transferring title to whoever was legally entitled. If they had the right to object to transferring title to joint purchasers (who are apparently registered as such at HMLR) why did they not do so before completion? I am not an expert on Right to Buy and I have no feel for whether they could recover the property given what they have been told by the parties, others may. We are not told the exact entries at HMLR or the details that were supplied on the basis of which they were made by them.

Presumably so far no tax return entries will have had to be made. If and when such are required e.g. on a future sale or the mother’s death, possibly HMRC may be interested in whether full PPR is due as the son is not resident. I doubt they are going to question whether the asset is comprised in her IHT estate. They first ascertain who owns the legal title and assume, reasonably, that beneficial ownership follows it. So the HMLR entries may matter. There ought to be a Form A restriction. If there is not the question arises what was HMLR told, what did Box 10 of the TR1 say? This could be corrected now though might need some explanation and a S of T.

I cannot say whether or not HMRC. advised by Iain Reed, would investigate or report elsewhere the possibility of a fraud on the lender, the local authority, or HMLR. These people are sanguine about offering a CDF to a blatant self-confessed tax evaders. They just want the tax, penalties and interest. A fraudulent disposition creates tax consequences unless and until it is set aside and HMRC will sit on the fence while the parties to the necessary litigation fight it out. As they would not seek joinder or to intervene in a live case why would they poke around uninvited looking for frauds under the bed? No tax offences seem to have been committed here.

I don’t see it has helpful to the original questioner to lob in the fraud stink bomb.

Omnia praesumuntur rite et solemniter esse acta!

Jack Harper

And by way of further support of Jack’s view on the matter, by way of practicalities, this would not be the first time a “lay couple” have obtained a mortgage without giving due regard to the true beneficial interest. The priority was to obtain the mortgage and details such as ownership were not prioritised, presumably as it was “clear” as to what that meant between the parties themselves. Of course this does not in of itself change the beneficial and tax position, but the matter must be looked at in the round. I agree the fraud stink bomb is unhelpful… it certainly was not given too much coverage in the “Declaration of Trusts: Handbook” by Sweet & Maxwell, or perhaps I overlooked that section. I do recall there being examples of mortgage obtained to assist with a Right to Buy purchase.

Coincidentally, and along the same lines, I met with a potential client just yesterday for the purpose of preparing his Will. He advised me to “ignore that property” as “that belongs to my cousin”. On further enquiry, the property is in the joint names of two cousins A and B. They jointly made the mortgage application as A could not obtain the mortgage himself. However, A provided the deposit and has made all the mortgage payments and also has let the property and receives the rent. Cousin B however has still declared half the rent on his tax return albeit that he does not receive the rent. The rationale being that B wants no trouble with HMRC. Who owns the beneficial interest? A and B jointly, or just A?

The problem of beneficial ownership being addressed only after the event has to some extent been addressed where spouses divorce but to a much greater degree in relation to cohabitants where the Court has no similar powers to do justice by reference to s25 MCA 1973 and by the financial remedies in Part II of the Act. See Stack v Dowden and many other cases for the costly and labyrinthine forensic determination of the issue.

Another commonplace is where Mum & Dad Bank plc borrow or act as guarantors to finance the acquisition of a property for a child to own and live in and so have PPR for CGT. And where sharers who are not related make financial contribution to the purchase price and may forfeit PPR.

A well drawn agreement at the outset heads off most of the potential aggravation.

BTW as to the original query, if mother and son hold for her alone, the good ship TRS heaves to on the horizon.

Jack Harper

Some very useful comments thank you.

I have however lost the thread of the best course of action?

Client is 80 years of age and has four children who all agree that the property is their mother’s (including the joint owner son). I have told her that her son must seek independent legal advice but I fear they will just put it on the back burner … a nightmare waiting to happen. What if he marries or has children and no Will …

The LR title has the usual restriction confirming tenancy in common (since she made her Will in 1998) but no records of what (if anything) was discussed at the time. To be fair it is 25 years ago and I’m not convinced she would have understood the implications anyway.