Buying a Property in Trust for our son – Land Transaction Return Form

by Readers Question

11:37 AM, 20th March 2017
About 2 years ago

Buying a Property in Trust for our son – Land Transaction Return Form

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Buying a Property in Trust for our son – Land Transaction Return Form

We are in the process of purchasing a property for our son and are using a Discretionary Trust with a Life Interest for him to do so.

We have exchanged contracts and our solicitor has sent us the completed Land Transaction Return Form (SDLT 1E) for signing. However, he has entered our son’s details as the Purchaser. In my mind, this would register the property in his name and defeat the object of the Trust?

I think it should contain the Trust name and UTR number instead with my wife and I signing as Trustees (Sections 49 – 73 if anyone knows them that well).

Are there any solicitors or someone with experience of doing this that can confirm either way please?

Many thanks

Paul



Comments

Darren Peters

20:58 PM, 20th March 2017
About 2 years ago

Could you buy the property through a Ltd Company with majority voting rights for you and majority ownership rights for your son? So he owns it but you control it until you don't when you vote to transfer the shares with the voting rights to your son?

PaulM

21:22 PM, 20th March 2017
About 2 years ago

Reply to the comment left by "dp1 Django" at "20/03/2017 - 20:58":

We could, but we've decided to create a Discretionary Trust to buy the property, along with a "life Interest" for my son. This allows my wife and I to still retain full control of the initial investment plus any capital gains. By having the "Life Interest" and because he doesn't own any other property, then there is no increase in the SDLT rates payable. All rental income generated throughout is charged against him.

Then before the Trust is 10 years old and assuming he is settled, we will gift the property to him and dissolve the Trust. We will use carryover relief for any CGT.

Essentially, we're trying to use up some of our IHT allowance and protect him against any wayward partners down the line or him doing anything stupid.

Puzzler

10:35 AM, 21st March 2017
About 2 years ago

You should query with your solicitor. However as he is the beneficial owner the SDLT will have to be paid if applicable. But if he doesn't own any other property it would not be payable anyway? The first or only property is exempt.

Colin McNulty

10:32 AM, 26th March 2017
About 2 years ago

I don't know the answer to your question, but your concerns seem legitimate.

Why are you going to gift the property to him and dissolve the trust though? Isn't one of the points of trusts to allow for multi-generational wealth, otherwise wealth is eroded every generation when the tax man takes his IHT cut.

H B

10:55 AM, 26th March 2017
About 2 years ago

I am not an expert on exactly how this works, but minors cannot own property in their own names.

Also, Trusts never "own" anything as they are not a legal person.

But I am not sure who/what goes on the land registry. But presumably there are very well-defined rules relating to this.

Puzzler

11:16 AM, 26th March 2017
About 2 years ago

I assumed the son was of age. If so what does he think? Bear in mind trust income tax is quite punitive and complex. I am not sure what there is to be gained from this plan.

PaulM

11:31 AM, 26th March 2017
About 2 years ago

I questioned the completion of the form with the conveyancing solicitor and he has now changed it placing my wife and I as the Purchaser's acting as Trustees for the Trust. As a final check, the Trust solicitor will be back from holiday tomorrow, so he will confirm as well.

My son is an adult (19) so he can legally own the property, so there is no increased SDLT payable as it's his only residence. The Life Interest allows him to keep the rental income and/or live in the property if he so wishes down the line.

The reason for the Trust in the first place is two-fold. Firstly, we want to gift some money out of our estate for IHT purposes (hoping we live for 7 years!!!!), and secondly, protect our initial gift and any future gains from him making any stupid decisions or it being challenged by a wayward partner. I appreciate it's not a "water tight" guarantee against a challenge, but it's the best we can do at the moment.

The reason to eventually dissolve the trust will be to simply to remove the ongoing costs of running it and then also be able to use our IHT allowances again. As part of our Will and Estate planning, we are making use of multiple trusts to pass wealth down the family line.

I'm aware of "minors" not being allowed to own property as we're also in the process of buying a property for our second son (17) also in Trust and also to use our remaining IHT allowances. He is not 18 until November but the opportunity is too good to miss, so the +3% is worth paying (I can't believe I just said that!).

By doing this now for both of them means that assuming we survive for the 7 years, we will be able to repeat the process for our 7 year old.

Colin McNulty

10:57 AM, 27th March 2017
About 2 years ago

Thanks for the explanation Paul. I've looked at trusts a few times, but found it very difficult to pull back the veil of secrecy that surrounds their use, that's put in place by the trust peddlers themselves.

You see they don't want to give away advice for free, as their knowledge is their product, I get that, and everyone who is qualified to give advice is trying to sell you something, namely wills and trusts.

I did get a will writer in last year for: "£350 for a pair of wills". Only by the time he'd finished suggesting this trust and that trust, he'd added a zero onto the end of that bill! It may have been good value, it was hard to tell as whilst being a jolly nice fellow he was just a (possibly ex-double glazing) salesman who had lots of rehearsed soundbites, but couldn't answer any serious technical questions about trusts and their tax treatment.

In terms of the multi-generational wealth protection, this article about the Duke of Westminster's death got me thinking about it again last year:

http://www.telegraph.co.uk/tax/inheritance/inheritance-tax-and-how-the-dukes-of-westminster-avoid-it-on-the/

PaulM

12:18 PM, 27th March 2017
About 2 years ago

Hi Colin,
You know how the old saying goes "you get what you pay for...".

As of the tail end of last year, I've done just the same as you in terms of new wills and IHT planning. Their fee was £2,500.00+vat but that pretty much covered everything including changes to the ownership of our private home and the provision for multiple trusts to be created on the death of my wife, me, both of us, or the whole immediate family. No Estate Trusts were actually set up now or else ongoing charges would kick in which isn't needed at this stage.

They also included all the calculations around Business Property Relief for my main IT business (Property Businesses can't use BPR). Despite their £3k bill, I have to say it was well worth it in my opinion and they were excellent throughout.

Since then, I've moved forward with the next stage being the property acquisitions for my son's to move money outside of the estate and later this week, the discussions around insuring against the IHT bill.

They were able to answer all the technical questions around the tax treatments (of which I had many), but you have to remember, they can only answer questions as of now as who knows what's further down the line in terms of taxes and death duties.

The article you linked to makes interesting reading. I shall be printing this to bring with me this week. From the point "What about giving assets away?...." below is pretty much exactly what I've just done. The only difference being the creation of a "Life Interest" for my son which allows him to keep and more importantly be taxed on the earned income at his tax rate and not mine.

I think it's worth progressing if you've started the estate planning work. Ultimately, they should save you or should I say "save your estate" their fees by the reduced IHT bill. I can't vouch for the guy you were using, but at least you know what I paid for the same service, so if they were quoting you £3.5k, they probably weren't far wrong.

Good luck...Paul.

Darren Peters

19:38 PM, 27th March 2017
About 2 years ago

Reply to the comment left by "Colin McNulty" at "27/03/2017 - 10:57":

None of the following is intended as advice, just observations after trying for many years to understand Trusts. I'm happy to be corrected where my logic is wrong and very happy if anyone wants to fill in some gaps.

I'm of the view that a UK based Trust is so named as a lure to pull in money that might otherwise go to an offshore Trust. Being UK based, the UK govt can change the rules at any time if it feels the plebs are holding on to too much of their earned income.

On the one hand, if Trusts or any other instrument becomes so easy to understand that the masses get wind then the govt thinks it's losing too much money so changes the rules. On the other hand if something unique, expensive and complex is used how does one cross-check that it will work down the line?

As well as obscurity, cost is another barrier to entry. You need a certain amount of money before a Trust pays for itself. Few of us could afford the cost of the advice the Duke of Westminster pays.

The dilemma of our govt moving the goalposts is partially resolved by finding a juresdiction where that govt benefits from the Trusts in their country as a valuable source of foreign income. Yes, those evil offshore Trusts so beloved personally by our Lords and masters who talk of morality when the riff raff have the audacity to copy them. Lets call our ideal offshore juresdiction, "Narnia", to keep things simple.

Some key elements of a correctly set up Trust:

Narnia will not roll over for the UK govt or Courts.
Ability for the Protector of the Trust (probably you) to move the Trust from Narnia to Elsewhere if Narnia wobbles.
Discretionary nature. This prevents the UK courts or anyone stirring them up from getting your money. If you are a beneficiary of a Trust and it's not a discretionary arrangement Ie fixed income, the Courts can order that amount taken off you. If it's discretionary, the Trust can simply stop paying you any money. Perhaps instead they would pay off debts built up on a credit card so you never own any money.

Anti-duress clause. If the Trustees in Narnia (Trustees are not you) get wind that you, as Protector of the trust (Protector is the person that can move the Trust from Narnia to Fairyland to Elsewhere; might also be the benificiary), have been ordered by a UK Court to transfer the Trust to the UK where they can take the money then you must do exactly what the UK Court says or be found in contempt and go to prison. So you must do everything you can to try to move the Trust, record all this and show the Court that you have followed out their orders to the best of your ability. The Narnia Trustees in the meantime have found out that you are acting under duress and will stick up two fingers to you and the UK Courts.

UK law firms must put up a big chunk of own money and engage a Narnia based attorney if they want to attack the Trust in the Narnia courts. No fishing expeditions allowed. This discourages the 'Did you trip over a paving stone and get whiplash?' lawyers from trying to break a Trust as they have to put up and potentially lose their own funds. They'll also find Narnia's legal system glacial to the point that Narnia's Statute of Limitations will likely kick in before the case gets to court. Remember the Narnia govt makes money by having Trusts. If they are seen as caving to lawyers or other govts the money will go elsewhere very quickly.

To stress this point, a UK based Trust for a UK based individual is something that costs the UK government money. They don't want this.

Narnia wants foreign (UK) money and will fight tooth and nail to preserve its offshore business and keep its reputation intact.

Other comments. If you are _not_ a UK subject & not resident in the UK, the UK might be Narnia for you. If you are a UK subject the UK is definitely not Narnia.

The area I'm not clear on, if you have fixed assets the UK govt can make laws to take control or apply big taxes no matter who owns them. Eg you are the benificiary of money from a Narnia Trust that owns a UK Ltd company that owns some HMOs. Or you live in a property as your home for a peppercorn rent and the property is owned by a Narnia Trust where you might be the beneficiary of a discretionary trust.

It's not about tax avoidance but about protecting assets.
I don't have any connection to any Trust and am not selling anything.

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