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UKSolicitorJA, Solicitor
Category: Law
Satisfied Customers: 4312
Experience:  English solicitor with over 12 years experience
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I am a trustee of a family trust. A flat in the trust is rented

Customer Question

I am a trustee of a family trust. A flat in the trust is rented out and the net profit of the rent is passed to a beneficiary of the trust as she pays tax at 22% as opposed to 45% which the trust would pay. The rent is about £16K and the net profit about £12K which goes to the beneficiary. What agencies would lend money when it is a trust? The idea would be for the beneficiary to take out a mortgage plus the loan to buy a flat. If she receives the rental money, could she as a beneficiary service this loan? Amanda
Submitted: 2 years ago.
Category: Law
Expert:  UKSolicitorJA replied 2 years ago.
If the beneficiary obtains a mortgage in her own name, she may use the proceeds of her trust income to pay off the mortgage, that is fine.
She has to shop around for a mortgage provider who is willing to give her a mortgage on suitable terms.
If money is lent to the trust, the trust is liable for repaying the loan, not the beneficiary unless there is a three party deed of loan between the lender, the trust and the beneficiary specifying that the money is lent to the trust but will be repaid by the beneficiary.
May I help further?
Customer: replied 2 years ago.

The question was

1. The Trust which basically has one flat in it, BORROWS money on the strength of the flat. Say around £150K. Can the beneficiary pay off this loan using the rent money that has been passed to her from the Trust. (The reason being she pays tax at 22% not 45%)

2. If not then if the Trust raises the £150K loan and the rent money is used to pay off this loan, will it have to be kept IN the Trust and not passed to the beneficiary. In which case it will be taxed at 45% which renders the project rather pointless as there will be little money left to service the loan after tax. Therefore I want the beneficiary to service the loan raised by the Trust.

Expert:  UKSolicitorJA replied 2 years ago.

1) yes, this is possible if the lender agrees to the beneficiary repaying the loan on behalf of the Trust;

2) see above.

All the best

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