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How to split value of property among family

This month, one of the Tax Discussion Groups in Croydon & South East London considered the case of how six children of an elderly mother could benefit from her home even though it was acquired by just two of the children many years previously.

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Andrew McKenzie-Smart

November 2019

The accountant explained that his client had an elderly mother who was living in a property which was owned by two of her daughters. The property had been acquired by the daughters many years ago from their uncle at a substantial discount. 

At the time it was acquired only the two daughters were able to take on the mortgage to acquire the property, but their mother had in effect paid the mortgage through her daughters. Over the subsequent time the mortgage has been redeemed and so the property is now unencumbered.

The accountant set out that the intention was that not just the two daughters who legally owned the property were expected to benefit from the gain in its value but also her four other children. Given the intervening period, the accountant asked what would be the best solution to enable all six children to benefit from the property?

The discussion group considered the following options:

  1. A deed of beneficial ownership dating back to the initial acquisition. The uncle was still alive and so he could sign any such deeds to confer beneficial ownership on the six children with the two daughters being on the title deeds as legal owners and additionally as nominees for their siblings.
  2. A deed of trust over the property granted by the daughters on their mother and/or their siblings regarding the property.

There was a recognition that the dating of a deed of beneficial ownership to set out that the property had always intended to be in beneficial ownership of the six siblings could potentially be subject to challenge by HMRC and by the family. While their uncle remained alive it would be possible to obtain his confirmation regarding his intentions, but it was felt that the considerable intervening period would make its validity difficult to support without further contemporaneous complementary evidence.

There was then discussion regarding the possibility of settlement of the property on their mother for her lifetime, with her six children then remaindermen of the trust. This would provide their mother with certainty of occupation for the property.

It would also provide considerable benefit to the family from the “uplift” to probate value on her death, as her assets were understood to be below the Inheritance Tax nil rate band.

Each month (with the exception of July and August) the Tax Discussion Groups in Croydon & South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend & normally cover over a dozen tax issues raised by those attending.

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