Declaration of Trust to Company Questions

by Readers Question

10:51 AM, 7th July 2017
About A year ago

Declaration of Trust to Company Questions

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Declaration of Trust to Company Questions

I’ve been researching the merits of buying a property as an individual, and creating a Declaration of Trust (DoT) to nominate the beneficial owner as my company.

What I have determined so far is:

• The mortgage lenders take their security against legal ownership ie the individual.

• The legal title at HM Land Registry does not need to be changed when transferring beneficial interests via a DoT

• There is no requirement to advise or seek consent from mortgage providers. This is because their security remains unchanged.

• Form 17 would not be applicable as property is owned by one person a DoT.

I have the following remaining points to resolve

1. Has anyone done this already?
2. If so, what has HMRC said on the topic?
3. With a DoT in place, can the mortgage interest relief be claimed by the company?
4. Can you have multiple properties with BTL mortgages in your own name and would you have a DoT in place for each property?
5. Can a DoT be amended in the future and if so who by?

Many thanks

Rob



Comments

Neil Patterson

11:03 AM, 7th July 2017
About A year ago

Hi Rob,

Mark is out of comms this week on holiday and I am not the expert he is unfortunately.

However, I am confused as to why you are not purchasing the property in the company name to start with as this is the consensus of opinion for all new purchases and then you do not have the finance cost restrictions.

Please check out our tax planning page and tutorials which I hope will help 🙂 >> https://www.property118.com/tax/

rob hales

11:14 AM, 7th July 2017
About A year ago

Reply to the comment left by "Neil Patterson" at "07/07/2017 - 11:03":

The costs of company mortgage are huge in comparison to BTL for individuals. So I'm trying to minimise this.

Neil Patterson

11:32 AM, 7th July 2017
About A year ago

From Mark's Article Declarations of Trust >> https://www.property118.com/declaration-of-trust/93073/

HMRC charge tax on the beneficial ownership of rental profit and capital growth from rental properties, HOWEVER, mortgage lenders take their security against legal ownership. It has been possible to split legal and beneficial ownership of property since the days of the Christian Crusades.partnership

There are three primary tax reasons for creating a partnership by splitting beneficial ownership on rental properties using a Declaration of Trust:-

To fully utilise more than one nil rate band and basic rate tax allowance
To utilise more than one annual CGT personal allowance when selling property
After a minimum of three years of submitting partnership tax returns a business partnership can be incorporated without SDLT becoming due (schedule 15 Finance Act 2003)

As the legal title at HM Land Registry does not need to be changed when transferring beneficial interests via a declaration of trust there is no requirement to advise or seek consent from mortgage providers. This is because their security remains unchanged. Thousands of Declarations of Trust are arranged by conveyancing solicitors every week.

Forming a partnership with a spouse is often considered most effective as transfers between spouses are exempt from Capital Gains Tax. However, if you’re not married there is nothing to stop you forming a partnership with another party. Examples include; a child, an unmarried ‘partner’, a sibling, a parent, a company (it could be your own company as companies are legal entities in their own right), another landlord or even a friend. If you transfer the optimal proportion of beneficial interest in your properties then CGT and Stamp Duty is often avoidable. Note that SDLT is only payable on transfers over £40,000 and that you also have an annual CGT exemption allowance to utilise.

Once a Declaration of Trust has been established all beneficial owners of the property need to complete tax returns. It is also advisable to obtain a Unique Tax Reference Number (“UTR”) from HMRC and to submit partnership tax returns just in case you ever decide to incorporate you rental property business partnership.

Neil Patterson

11:41 AM, 7th July 2017
About A year ago

Hi Rob,

Yes the costs are higher for a company BTL, but it all depends on how much section 24 is going to affect you by as you could be paying tax on non-existent profit.

Neil Patterson

11:44 AM, 7th July 2017
About A year ago

This article was a similar discussion >> https://www.property118.com/limited-company-buy-let-mortgages-worth/100418/

Are Limited Company Buy to Let Mortgages worth it?

26/06/2017

Before I start, please don’t confuse me with the other more knowledgeable and financially astute Neil Patterson on this forum! I can see the merits of holding property in a limited company given the changes to the tax treatment of mortgage interest. However, I’m hitting a problem in practice. I’ve recently remortgaged a property held… Read more

Ramus Wood

13:20 PM, 7th July 2017
About A year ago

Every single mortgage lender currently regards this as a breach of mortgage terms. So please do check with your broker first before doing this otherwise you might end up on the wrong end of a repossession order.

rob hales

13:27 PM, 7th July 2017
About A year ago

Reply to the comment left by "Ramus Wood" at "07/07/2017 - 13:20":

Are you saying any DoT is a breach?

Ramus Wood

13:33 PM, 7th July 2017
About A year ago

Reply to the comment left by "rob hales" at "07/07/2017 - 13:27":

Yes.

Don't spend money on the tax advice before you have written confirmation from an independent broker that the mortgage lender is OK with this structure.

Neil Patterson

14:04 PM, 7th July 2017
About A year ago

"As the legal title at HM Land Registry does not need to be changed when transferring beneficial interests via a declaration of trust there is no requirement to advise or seek consent from mortgage providers. This is because their security remains unchanged. Thousands of Declarations of Trust are arranged by conveyancing solicitors every week."

Simon Allen

22:43 PM, 8th July 2017
About A year ago

A DOT can breach a lot of lenders mortgage conditions if you do not request permission first. This is a clause from one such lender:

What the Borrower must not do.

The Borrower must not without first obtaining the Lender’s consent sell, mortgage, charge or dispose of any interest in the Property; grant or create, or permit the grant or creation of, any new rights over or in the Property.

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