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Smith Family Bare Trust Case: Legal Title and Beneficial Ownership

20 Jan 2022

Posted in Legal News

Bharat recently executed a property purchase using a bare trust for the Smith family.  The dad Mr Smith wanted to gift cash to his  daughter, Eva, to buy a property.  The property would be in Eva’s name without a mortgage.  Eva at the last moment told Bharat that for personal reasons she  did not want to have the property title in her name as it would be visible on the Land Registry records showing her as legal owner of the property.

Bharat suggested that Mr Smith purchase the property on an absolute trust for Eva.

Using an Absolute Trust would mean  that  the legal title would be in  Mr Smith’s name but for tax purposes the beneficial ownership would be Eva.

There would be no stamp duty surcharge for additional properties to pay even though Mr Smith already has more than one residential property in his name.

The stamp duty payable shall be determined by the circumstances of Eva. As this  is  her first and only property there is no additional stamp duty.

Upon registration, the Land Registry title documents will show that legal title is in the name of Mr Smith.  Eva’s name is not mentioned on the title register even though the property for all intent and purposes belong to her and not Mr Smith.

However, income and all rights belong to Eva .

Mr Smith wanted to reduce his assets for inheritance tax solicitor. His concern was that him owning the legal title of the property meant it continued to be his property for Inheritance Tax purposes.

Bharat informed Mr Smith and Eva that for Inheritance Tax purposes, the property placed in this form of absolute trust is  treated as ‘potentially exempt transfers’. , The transfer to the  trust only becomes subject to Inheritance Tax if he dies within seven years of putting assets into the trust.