Inheritance for 12 year old and declaration of trust!

Inheritance for 12 year old and declaration of trust!

10:44 AM, 26th June 2017, About 6 years ago 10

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My 12 year old daughter has inherited a substantial amount of money from a relative, we want to invest this for her in property. We have a few rental properties already and would like her to have an interest in these by giving us some of her money. We will also be purchasing additional property and using a declaration of trust for her beneficial interest until she is old enough to make sensible decisions (another topic I sure!!).

Whilst I understand declaration of trust/ HMRC Form 17, etc thanks to the vast amount of valuable information posted on this web site, I would be grateful for some clarification on a worked example.

One of the properties we own is as follows:

Purchase Price with renovations, etc £90,000
Current Value £150,000
Mortgage £100,000

So mine and my wife’s equity is obviously £50,000 so if we were to have £50,000 of my daughters money and give her that share, would she own 33.33% or 100% as the balance is mortgaged. I am probably being a little dim but can’t quite get my head round it! I think it is the 33.33% but if that is the case our 66.66% if basically all financed. What happens with the rent, I assume if she owns 1/3 she gets 1/3 of the rent, less 1/3 of costs? But what happens with the mortgage interest. Now getting more confused???

I am assuming any rent paid to her would be legitimately hers as she inherited it directly? I am also assuming she could use her personal tax allowance and that we would have to complete a self assessment each year for her?

Any advice or ideas would be gratefully received.


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Neil Patterson

10:51 AM, 26th June 2017, About 6 years ago

Hi Gary,

I think you are suggesting one third interest for your daughter with assets and liabilities split 33% each?
Therefore why would she put in £50k if you think of this as a new purchase as the deposit required would only be £16,666?
You definitely need to seek advice from a qualified and insured accountant that understands this area as I am definitely confused by what you are trying to do and this is not my specialist area.

Charlotte Walker

11:45 AM, 26th June 2017, About 6 years ago

Take a free half hour with a solicitor to work it out. My son owns 78% of a property in a bare trust. A trust cannot hold a mortgage. I do a regular tax return with property pages for him. I co-own the property which is not strictly allowed in trust law as I am also his trustee, however, I am only accountable to him at 18 for the mistake. This will also prevent him from selling or mortgaging at 18. I have used the property's unencumbered status to run it as SA to increase profitability and pay for renovations. I understand your frustration at the limited options for kids' inheritances. Get it right because a poor decision at this stage will have implications down the line.

Mike W

11:54 AM, 26th June 2017, About 6 years ago

Take legal advice. This is not quite as simple as you might think.
Can minors own property directly?
I am surprised the inheritance did not come with restrictions on a minor.....
Trusts .....
Being sued by child if you loose money?
CGT on your disposal ..
And that is all I could think of in a minute or so.


12:48 PM, 26th June 2017, About 6 years ago

Why confuse matters on existing property you already own? If you intend to buy additional properties, then do just that.

Minors cannot buy property in the UK, so you are left with two options,

1. Use a Bare Trust (normal SDLT rates apply), but when she turns 18, the property will be owned outright by her so any poor life choices and she has a house to play with.

2. Use a Discretionary Trust with a "Life Interest" for your daughter. Then you as the Trustees will control the property while she can keep the income (once she turns 18). However, as she is currently a minor and cannot own property, you will be liable for SDLT at the enhanced rates (+3%) and any income earned now will be assessed 100% against you (or the settlor). The protection you or she has in this scenario is that the property will be protected should she take a wrong turn later in life as a moody teenager!

Where it gets complicated is who is defined as the Settlor i.e. who gave her the money and the impact of how this is treated from a taxation perspective.

You will need to get yourself a good financial planner (or start researching), a Trust lawyer and an Accountant who understands Trust law. This will not be easy and I doubt very much your initial thought process will work.

Good luck.


20:02 PM, 26th June 2017, About 6 years ago

Your calculation is wrong though as the shares are allotted without taking the mortgage into account : if she were to put in £50000 she would own all the equity - you need a specialist solicitor and everything drawn up properly. I suggest it would be better to buy her another property in which she is the only beneficial owner then it will be much clearer. Note there are strict rules in trusts as to what you can do with her money, you may not be able to do it at all, start with the solicitor dealing with the estate. Are you and your wife the sole trustees?

21:16 PM, 26th June 2017, About 6 years ago

The first question here is: who is holding your child's money as trustee? If it's not you, then you have no ability to spend the money at all and that is the end of the matter.

If it is you, it would seem very dubious/ risky for a trustee to use funds held in trust to purchase their own assets. There is a conflict of interest. It might be permissible to do this as a question of trust law but you should check with a lawyer. Even if it is permissible, you would need to be very careful.

In answer to your question, the only thing you have to sell is an encumbered interest in the property, which is valued at £50k for a 100% interest. Charging your child £50k for a 1/3 interest would seem a very clear breach of trust - i.e. overcharging her.


19:37 PM, 27th June 2017, About 6 years ago

Reply to the comment left by "Charlotte Walker" at "26/06/2017 - 11:45":

A trust can hold a mortgage but yours is not strictly a trust. There are different tax treatments for trusts. You own title to a property which by some mechanism your son is a beneficial owner. Once he is 18 he can do what he likes with it, although as legal owner you can advise him you cannot prevent him realising it as it does not belong to you. Who owns the other 22%? even if it's you, you can't prevent a sale, although you could make remortgaging difficult as you both would need to be on the mortgage.

Charlotte Walker

21:57 PM, 27th June 2017, About 6 years ago

Reply to the comment left by "Puzzler " at "27/06/2017 - 19:37":

Thank you puzzler. very interesting.


22:04 PM, 27th June 2017, About 6 years ago

Reply to the comment left by "Charlotte Walker" at "27/06/2017 - 21:57":

You also might need a specialist, which I am not (although I have read a great deal on the subject). Of course I have made assumptions which may not be true.


14:08 PM, 23rd September 2020, About 3 years ago

I purchased a number of buy to let freeholds 15 years ago which now need to be remortgaged. I took out personal mortgages with the lenders in my name but the properties are held in a Ltd company under a declaration of Trust with me as the nominee. The Ltd Company has paid the mortgage and collected the rents on the properties since day 1.
Question - if I remortgage in the Company name instead of my personal name will there be a liability to Stamp Duty ?

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