Deed of trust valid if stamp duty unpaid? Repercussions to trustee?

by Readers Question

12:23 PM, 18th June 2020
About 3 months ago

Deed of trust valid if stamp duty unpaid? Repercussions to trustee?

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Deed of trust valid if stamp duty unpaid? Repercussions to trustee?

I won’t go into reasons for how this happened, but let’s say Eve has a lot of control over Bob and pressured them emotionally strongly into doing it.

Bob purchased a flat. Eve asked Bob for the flat to be sold to them at purchase price. Bob was doing v well in life and agreed to it due to major life help from Eve (well in fact, Eve is Bobs mother). Bob had used the flat as his primary residence, so no CGT was due.

Eve told Bob not to bother with a conveyancer (expensive, bureaucratic) and that she had done the homework. She told Bob she trusts him and asked him to a sign a “deed of trust” which would transfer all beneficial interest to Eve.

Bob agreed. Bob later found out that stamp duty may have been due on Eve and that Eve hadn’t paid this.

Bob read on the HMRC website that a document which is in scope for stamping may not be valid unless stamped (although he concedes he found it under the shares transfer section, rather than property).

Eve is adamant she will just hold the property until death. Bob is worried that if Eve should die prematurely, he will be in a lot of trouble. Bob also owns no other property as he’s been working abroad. He’s worried if he comes back, he will be asked to pay an extra 3% stamp duty unless he can demonstrate he has no more beneficial interest in the property.

Questions then:

1) Can Eve and Bob establish in a court that the beneficial interest on the property is indeed hers and that the transfer has taken place, despite it not being recorded under the land registry (in the belief that trusts are a private matter and there’s no obligation to record even with HMRC as they are not spouses). Does the correct execution of a trust even matter if Eve can establish she has been benefiting from the property (living in it, taking income from lodgers / renting it out)

2) Would any penalty be due on Bob – he genuinely thought he could just transfer shares and ask Eve to sort out everything else which is legally required. He does not want to throw Eve under the bus / report Eve. He is worried that there may be extra SDLT due on him on a subsequent house purchase or CGT should it be established that the trust is invalid.

Fei



Comments

Mark Smith (Barrister-At-Law)

9:54 AM, 19th June 2020
About 3 months ago

This is a complex matter and needs review based on the documents.

1. SDLT is payable by the buyer/acquirer of beneficial interest.
2. Failure to pay SDLT does not invalidate an acquisition of beneficial interest.
3. The tax position of each party cannot be established without a full review of the papers.

Puzzler

8:59 AM, 20th June 2020
About 3 months ago

On the face of it the property still belongs to the son. The mother has paid for it. Does the mother live there? If neither of them obtained legal advice there is a problem as a deed should have been drawn up professionally and both parties get independent legal advice so is possibly not valid. Saving money on that is a false economy. Where did she get it from otherwise?


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