Restriction on investment property preventing remortgage

by Readers Question

15:03 PM, 2nd January 2019
About 2 years ago

Restriction on investment property preventing remortgage

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Restriction on investment property preventing remortgage

I have an investment property where just I am named on the title deed and we have a Declaration of Trust where my wife is a 50% beneficial owner. The solicitors who set up the Declaration of Trust also placed a ‘joint proprietor or trustee restriction’ with the land registry. I am now trying to remortgage the property (in just my name) but the (different) solicitors involved say they cannot proceed unless the restriction is lifted, and that this can only be done by the solicitors who applied the restriction. The original solicitors say the restriction cannot be lifted because that would require me to be the sole beneficiary of the property, which is not true.

Other factors are: I am higher rate taxpayer; my wife is a lower-rate taxpayer; and the property currently has a mortgage in just my name.

I have three questions. First is it possible to have the restriction lifted if my wife gives her consent? Second, if it is possible to lift the restriction, would I have to use the solicitors who applied it in the first place? Third, would a better way to proceed be to change ownership so my wife and I become tenants in common, then remortgaging in both our names?

Many thanks

Charles


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Comments

Neil Patterson

15:05 PM, 2nd January 2019
About 2 years ago

Hi Charles,

Mark Alexander is on holiday at the moment, but he did tell me he prefered your last suggestion >> Third, would a better way to proceed be to change ownership so my wife and I become tenants in common, then remortgaging in both our names

steve gilbert

9:18 AM, 3rd January 2019
About 2 years ago

Hi Charles I had the exact same problem. You can look up my previous comments on here and PT to see. I lost the mortgage in the end and then had 6 months of work and turmoil to try and sort out. I went through word for word HMRC trusts internal manual, through land reg manuals and spoke to 10 different solicitors.
The problem boils down to this. Under Trust law and the Land Reg for a DoT to be legal a Form A restriction must be entered on the title deeds in favor of the beneficiary/ 's. Common sense really to have a beneficial interest on a property it has to be noted and stop the noted owner from being able to act against beneficiaries interest. So far so good However under trust law and therefore followed by land reg there has to be minimum 2 trustees named and in agreement for a change. Therefore land Reg will not allow a change on deeds, say for a remortgage as there is only 1 trustee. For landlords this can be a problem. Most Dot are between husband and wife. One being trustee the other beneficiary. The DoT is legal, provided a Form A restriction is entered on deeds, however that will disallow any changes in charges etc being allowed as there needs to be 2 trustees in agreement and there is only 1 trustee! I understand the reason 2 trustees need to agree is to stop fraud and make sure the trustees act in beneficiaries interest.
There is an answer. HMRC either understand this problem or are ignorant or actual trust law. I am not sure which but they re willing to accept DoT without any restrictions or interests noted on Land Reg for beneficiary. In effect HMRC for tax purposes accept non legally binding DoT. I can't remember the forms but you need to apply to land reg to nullify the restriction. It only takes about a week, then reapply for a mortgage. HMRC will still accept you have a Dot. A solicitor did 14 DoT for me with the restrictions and caused me no end of bother. They ended up refunding me and compensating me. So weirdly solicitors executing a legal DoT, mainly for tax reasons, are in the wrong and those writing them with no Form A restriction whether through ignorance of the law I don't know, are having no problems and HMRC are happy.
Hope this helps

Seething Landlord

11:26 AM, 3rd January 2019
About 2 years ago

I might have totally misunderstood the position but for what it's worth this is how I believe it works. Will somebody please correct me if I am wrong.
A Form A restriction is registered when legal title is vested in more than one person as tenants in common either on purchase, transfer or on severance of a joint tenancy. The effect of the restriction is that no disposition of the property, presumably including mortgaging it, can be made by one person without a court order.
Beneficial interest can be varied by deed of trust and does not have to be registered. The legal owner then holds the property in trust for the beneficiaries on the terms set out in the DOT and as far as I am aware there is no implied condition that the beneficiaries should be consulted before the property is sold or mortgaged as long as the trustee is acting in their best interests.
Presumably this is why HMRC will accept form 17 based on a DOT but without a form A restriction appearing on the title deeds.
Finally, it will be assumed that the same proportion of the mortgage liability is transferred with the beneficial interest, this will be regarded as consideration for the transfer and SDLT charged accordingly.

steve gilbert

12:30 PM, 3rd January 2019
About 2 years ago

Hi seething no you are wrong there in a way. Under trust law and reflected by land reg for a DoT to be legal on a property a Form A must be registered. The beneficial interest is not noted or % just that there is a 2nd party with interest in the property. Form 17 is never required for DoT if you read HMRC manuals they are very clear on this. Form 17 is merely for varying ownership when husband and wife are both legal owners. So if you send a Form 17 to HMRC on a DoT they just ignore it. You also do not and should not send a DoT into HMRC. Again their manuals are clear on this. If you send one in their employees are instructed to not look at it but to file it.

Seething Landlord

17:28 PM, 3rd January 2019
About 2 years ago

Reply to the comment left by steve gilbert at 03/01/2019 - 12:30
Form 17 does not vary ownership, it is a request to HMRC by a married couple to change the split of income to their actual shares of ownership. The form states "Please complete this form if you want to be taxed on your actual shares (known as `actual basis'). You'll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed" so I do not understand why you say that it is not necessary to send the DOT with the form.
When you say that "Under trust law and reflected by land reg for a DoT to be legal on a property a Form A must be registered" are you referring to legal title or beneficial interest?

CharlesT

0:49 AM, 4th January 2019
About 2 years ago

Reply to the comment left by Neil Patterson at 02/01/2019 - 15:05
Thanks for all the comments, they have been most helpful. After examining the two land registry forms I would need to complete to lift the existing restriction (RX3 and ST5) I now think it would be simpler to change ownership to tenants in common and remortgage in both our names.
Thanks, Charles


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