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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15758
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We are about to complete on a purchase of an off plan leasehold

Customer Question

We are about to complete on a purchase of an off plan leasehold flat which was bought for about £600k. The deeds of the property are in the names of 4 family members (25%each)After completion of the purchase of the flat we are looking to remove the name of 2 of the members from the title deeds. We will not have a mortgage on the property. I assume the property has increased in value from the purchase in 2013.. If we remove the 2 members from the deeds what will the tax implications be if any for the family members leaving and if there are tax implications how can you find out what the amount is. The members whose names are ***** ***** have had no involvement in the process so are concerned about any tax liabilities. Please advise.
Submitted: 8 months ago.
Category: Tax
Expert:  TonyTax replied 8 months ago.
Hi. Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 8 months ago.
By "no involvement in the process", I assume that the two whose names will be removed from the deeds means that they did not contribute to the purchase. If that is the case, it raises the question as to why their names are ***** ***** deeds at all. If the two who are being removed have no financial interest in the property and they don't report their removal to HMRC as a disposal of an asset, if and when the property is sold by the two remaining owners at a profit, HMRC may ask why there was no reporting of a disposal by each of the two removed individuals and you will need to explain that. As HMRC have access to property databases, they may ask the question soon after the period when what appears to be a disposal should have been reported to them. You have left yourself open to a period of doubt at the very least. Common sense says that if they had no financial interest and that can be proved HMRC should accept that but they may not. The worst case scenario is that HMRC say that the two removed individuals have gifted their respective 25% shares of the property to the other two at the open market value at the time of the "gift" which will leave them facing CGT liabilities if the property has increased in value since purchase. In addition, the gifts could be treated by HMRC as gifts for Inheritance Tax purposes. I hope this helps but let me know if you have any further questions. I may be able to comment further if you can explain why the purchase was in four names, given that two appear not to have contributed to it.
Customer: replied 8 months ago.
I will try to explain the situation. The property in London was found by M ( son ) in Hong Kong where advertised for S ( mother) who was looking for investment property. At initial deposit the title deeds were put in the names of M,S , C ( daughter) and J ( other son ). The plan was to change these at later date to S and M only and were told by solicitors easy to do. This process of change was thought to have been done when Osbourne added 3% to Stamp Duty for buy to let properties. It has since come to light , the change of title deeds had not occurred so if changed now it will trigger extra stamp duty charge which is substantial 17k extra. The thought was to complete with original names and remove names after but was unsure if there were tax liabilities. Property has increased in value by possibly 100k . Struggling to find best solution. Could a trust be used to transfer equity and hold off any Cgt until property sold. Any ideas welcome. Will pay any Cgt but would prefer to wait till disposal of asset.
Customer: replied 8 months ago.
In response to your query there was no particular reason those names were used as it was to be changed at a later date. Could you elaborate on the IHT situation as not sure how this is involved. Thanks
Expert:  TonyTax replied 8 months ago.
Thanks, ***** ***** haven't explained why the property was put into the names of 4 individuals at the outset? That is key for me. When were contracts exchanged? Can you explain how an additional £17K in stamp duty will arise if two names are ***** ***** the deeds now please.
Customer: replied 8 months ago.
I honestly don't know why those names were used - I'm not trying to keep any reason from you and not sure why this is key. Contracts were exchanged in 2013 but the solicitors now state with the new buy to let regulations in force that if we change anything on the title deeds now then we will fall into the period of the new regs and will be charged the extra 3% stamp duty - only going by legal advice given.
Expert:  TonyTax replied 8 months ago.
It's key from the CGT point of view for me. You have two people who have never had an interest in the property on the title deeds. Usually a name is ***** ***** the title deeds of a property if that individual has a financial interest in the property. I'm not going to second guess the solicitor on the stamp duty. I wouldn't recommend using a trust as that will complicate matters further and if the trust only existed for a short time, HMRC will probably say it is ineffective if it is closed down very quickly. I would suggest that you complete the purchase with the four names on the deeds if only to avoid the £17K stamp duty. Before that, however, you should have a deed of trust drawn up which states who has had a financial interest in the property since the deposit date and who has not had a financial interest since the deposit date. All four individuals should sign it. Sometimes, an elderly parent will have their son or daughter as a signatory to their bank account so that, in the event of the parent's death, the son or daughter can access funds settle bills on behalf of their late parent. So, there can be legitimate reasons for names appearing where they aren't expected to. In my opinion, removing two names after the purchase completes should not give rise to a CGT liability on them given that they have signed a deed which states that they never had a financial interest but the question as to why their names were there in the first instance may arise in the future and the two individuals who do have a financial interest may have to agree to indemnify them against potential CGT liabilities. If the two individuals who have no interest were deemed to have made a paper gain of £25,000 each, the first £11,100 would be covered by the annual CGT exemption and the CGT on the balance would be somewhere between 18% and 28% of the net taxable gain of £13,900.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15758
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 8 months ago.
Thank you for your suggestions and advice. It is really appreciated as this process has become a big worry.
Expert:  TonyTax replied 8 months ago.
You raised a query about IHT. If the two individuals who are to be removed from the deeds were deemed to have made a disposal for CGT purposes, it would be deemed to have taken place at the opne market value. That would also constitute a gift for IHT purposes by each individual, the value of which would remain in their respective estates for seven years after it was made.
Customer: replied 8 months ago.
Thank you for the IHT info.. I am thinking of maybe trying to alter the percentage share of the Property prior to completion so that their percentage ownership is only about 1% each. If this possible then I assume they will only be responsible for 1% of any capital gains. I'm not sure if you are still able to respond. Thanks for your help anyway.
Expert:  TonyTax replied 8 months ago.
Changing from 25% to 1% could eb construed as a CGT disposal and a gift in the same way that changing from 25% to 0% might be. You should check with the solicitor the effect on stamp duty. A deed of trust is the way to determine what the intent was and to show that the two who have no financial interest now never did.

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