Lender restriction on title prevents beneficial transfer

by Readers Question

16:00 PM, 21st June 2016
About 2 years ago

Lender restriction on title prevents beneficial transfer

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Lender restriction on title prevents beneficial transfer

A small family Trust wants to buy an income producing BTL property from a family member by way of a Beneficial Transfer to both avoid SDLT, (as the property remains legally owned by the family member), and to preserve the mortgage held by the family member, (as a new lender would require the Trust to be a full legal owner, thus incurring SDLT).prevent

However, the existing lender has registered a restriction on the Title preventing the use of the Beneficial Transfer, and will not remove it.

So, if the current owner was to pay off the current mortgage, and seek a new mortgage – Which lenders should he approach?

Generally the requirement for this restriction only becomes apparent once the mortgage offer has been made and accepted, fees paid, and the solicitors instructed?

Which lenders don’t put a restriction on the title as a condition of loan?

Many thanks

Mark



Comments

Puzzler

13:41 PM, 22nd June 2016
About 2 years ago

I don't think any lender will do it as they would have no security. The title and the mortgage are usually required to be in the same name(s). Trusts are quite costly to run, is this just to avoid SDLT? In which case probably not cost effective and quite possibly not legal.

Jon Pipllman

8:46 AM, 23rd June 2016
About 2 years ago

I am sure you have already checked, but is the trust allowed to buy an asset in that way - i.e. without clean title?

As for lenders, maybe a chat with a whole market mortgage broker would be the best place to start

Howard Reuben CeMap CeRER

10:40 AM, 23rd June 2016
About 2 years ago

A Trust is a separate legal entity, so even though it's commonly thought that you are simply 'transferring / switching' in to a Trust (or Ltd Company) owned by the current owner, actually, you're not. With a Trust, the Trust owns the assets and the current owners are simply Trustees and / or beneficiaries, but still not the actual owner at the time of 'transfer'. You are passing over ownership.

Same with a Ltd Company, you are not the owner, but simply a shareholder. It's the Company who would be the new owner if a property was 'transferred'.

So ..... taking the above in to consideration, one does not switch or transfer ownership to a separate legal entity, the actual transaction is a sale and a purchase. And therefore possibly stamp duty and CGT taxes may apply (see an accountant / tax adviser for confirmation of this in each specific case).

As far as trying to keep with the same lender, most lenders only lend to individuals and not to Ltd Companies (Trusts etc) and so the existing mortgage would not have been available and offered to a Company or Trust in the first place (their criteria simply does not allow it), hence their restrictions on title. There are (a growing number of) lenders who do now lend to Companies, Trusts etc, and most of them are via 'broker only' distribution, so a comprehensive discussion with a professional mortgage adviser is recommended in the first place.

Hope that helps.

Kate Mellor

16:00 PM, 23rd June 2016
About 2 years ago

I think Mark is referring to the transfer of the beneficial interest in the property and not the title. The current owner retains 'ownership' as a trustee for the owner of the beneficial interest (in this case the family Trust). This is a vehicle which has been suggested recently to aid those who have existing mortgages on properties and would experience a significant cost in remortgaging should they wish to incorporate and is therefore an alternative option to incorporation (if I remember correctly) to take advantage of the continued availability to companies of off-setting mortgage interest against income, although in this case it doesn't sound like that is their primary motivation.

Puzzler

22:54 PM, 27th June 2016
About 2 years ago

You would need professional advice in that case, but what is the point? If the current owner is keeping it in his name, there is no need for a trust. Trusts are expensive to run and for tax so any savings would quickly be eaten up.

Why does the owner want to put it in a trust? If it's for his future heirs, it just needs to be in a will.


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