Property fraud occurs when an individual attempts to claim ownership of a home that another individual owns. A fraudster who is successful in this endeavour can take numerous actions, such as remortgaging or even selling the home.
Properties that are unoccupied, or where a landlord may be absent for whatever reason, are at particular risk. The new HM Land Registry property alert service has been set up in order to limit cases of fraud – all for free.
How the property alert service works
The award-winning system operates by way of allowing individuals to monitor up to 10 registered properties free of charge, whether that be your own properties, or the properties of friends and relatives.
Whenever certain activities occur for a registered property that you are monitoring, you will receive email updates, allowing you to take any necessary action required to ensure the security of the properties.
After signing up, you will also receive bi-yearly reports on the properties that you are monitoring, specifying any activity that may have occurred regarding those properties. Here is some more information regarding the free service:
- The property you want to monitor must be registered with HM Land Registry in England and Wales;
- You must have registered for a property alert account;
- Email alerts will be sent when searches and applications are made against monitored properties;
- Upon receiving an email, you should take action immediately;
- The email received will detail who you should contact to take further action;
- You do not have to own a property to monitor it;
- If you do not have access to the internet, you can use the service by calling the Property Alert team on 0300 006 0478.
The benefits of using the system
The service can be used by anyone who has a particular interest in any property but will be very useful for landlords who have unoccupied properties, or where they may be absent, for example, those who may be living abroad.
To register for an online account, go to propertyalert.landregistry.gov.uk
For further guidance on residential property, or if you feel you would benefit from legal advice surrounding your properties, contact Wajid Darr on 0117 971 6765, or via email email@example.com.Read More
Mihaela Hyett este un avocat al Curtii Superioare England and Wales UK. Recent, a acordat asistenta juridica unor clienti romani care locuiesc in UK si care intentionau sa achizitioneze pentru prima data o proprietate imobiliara in UK.
Clientii cu inima indurerata, i-au marturisit Mihaelei ca inainte de a fi informati de serviciile juridice oferite de Mihaela in capacitatea sa de avocat in UK (UK solicitor), au intimpinat chiar din prima zi dificultati insurmontabile in procesul de transferare a proprietatii.
Dificultatile se datorau nu numai barierelor lingvistice dar si diferentelor majore dintre cele doua sisteme legislative
De exemplu unii clienti intentionau sa foloseasca in achizitionarea proprietatii in UK fondurile pecuniare provenite din vinzarea unei proprietii in Romania.
La prima vedere documentul aparea a fi originalul intocmit the un Notar public in conformitate cu prevederile legale din Romania. Datorita experientei legale si lingvistice, Mihaela imediat a realizat ca documentul nu era original cerut. Clientul nu avea nici o intentie de deceptie ci doar necunostinta si confuzie.
In acest context daca avocatul din UK nu intelege continutul sau legalitatea documentului prezentat, clientul se afla in fata unei situatii deosebit de neplacute. Aceasta poate avea un efect distructiv asupra relatiei client-avocat. De asemenea clientul poate intimpina costuri aditionale legate de traducerea sau legalizarea documentelor dupa cum este cazul.
In alte situatii clientii achizitioneaza o propietate in UK cu fonduri provenite de la membrii ai familiilor lor. Donatorul doneaza clientului fondurile necesare fara a pretinde ceva in schimb. Aceasta este situatia tipica a unei donatii. Alteori insa asa numitul “donator” ataseaza anumite conditii. Aceasta este situatia tipica a unui imprumut deci nu a unei donatii. Avocatul din UK trebuie sa discearna si sa concluzioneze care este adevarata intentie dintre partile creatoare ale raportului juridic, precum si care sunt obligatiile corelative ce revin fiecaruia.
Fie ca este cazul unei donatii sau a unui imprumut, fiecare situatie are implicatii legale specifice pentru banca din UK care ofera clientului un credit imobiliar sau ipotecar. Avocatului din UK ii incumba o “bona fide” obligatie de a informa banca si a intreprinde anumite masuri dupa cum este cazul.
Avocatul din UK are o obligatie deosebit de oneroasa in a explica clientilor romani si asa numitilor “donatori” din Romania, cerintele bancii din UK.
Vestea buna este ca Mihaela a putut si poate in continuare sa rezolve enigma si sa adreseze altele similare. Mihaela vorbeste romaneste si a studiat si practicat dreptul in Romania. Aceasta complementeza benefic faptul ca Mihaela este un avocat calificat in UK cu toate drepturile de practica in UK.Read More
They all confessed how until they found out about Mihaela, they faced insurmountable difficulties right from day one in the conveyancing process in the UK. The difficulties were not only due to the linguistic barriers but also to the major differences between the two legal systems. For example many of them have sold a flat or a house in Romania intending to use the sale proceeds to purchase a property in the UK.
There is a long tradition of Will writing in this country. The main reason for writing wills is to ensure that our assets pass to our chosen beneficiaries and to make sure we can choose who sorts everything out after we’ve gone.
The people who handle your affairs after your death are called executors. We recommend the appointment of more than one person to act as your executors. Preferably they should be younger than you, relatively level-headed and should live or work in your locality. Many people appoint their spouses or partners but if they are of similar age to you it might be prudent to appoint someone else as well. This will ensure that at least one executor is still around to do the job after you have passed away. Some people appoint their solicitors in the knowledge that the solicitors’ practice will still be here no matter what.
The people who inherit from you are called beneficiaries. The choice of beneficiaries should take into account anyone who is financially dependent on you: if you don’t leave enough to dependents, they may well make a successful claim against your estate after you’ve gone. Subject to this, your will should indicate how much of your estate you want to leave to which individuals Please remember that jointly owned property will automatically pass to the surviving owner and will not be distributed in accordance with your Will. For example, a house which is jointly owned will automatically pass to the surviving owner no matter what is in your will. Please ask us about this if you own anything with another person as there are often ways of changing the ownership, particularly changing the deeds of a house or flat.
Parents may wish to appoint guardians of their children in their Wills. It is important not only to choose the right people but also to check with them that they would be happy to take on the job!
We recommend that you instruct a solicitor to draw up your Will: sorting out a home-made will after someone has died usually costs much more than paying a solicitor to produce a proper will in the first place! Remember: what goes in your Will is your choice and we are happy to advise on all related matters including trust schemes for the young, the elderly and the infirm and also tax savings devices.
Stamp Duty Land Tax payable on residential property purchases on or after 1st April 2016.
The Government will be implementing new Tax rules for residential property where completion takes place after 31st March 2016. The information set out below is from the Government consultation document and sets out how they are expecting the new rules to work. We will not know exactly what the new rules are until much closer to the implementation date, probably after the budget to be announced on Wednesday 16th March.
The consultation paper attempts to cover all possible scenarios when someone is buying a house or flat. As long as all of the purchasers of the property you are buying only own one property (the one you are buying) at the end of the day when you complete your purchase, there will be no additional Stamp Duty Land Tax (SDLT) to pay -assuming the Government stick to what they have put in their consultation paper. Please check through the information set out below to see whether you will be paying the extra SDLT. If you are, the SDLT will be an extra 3% of the whole purchase price of the property. For instance, if you are buying for £200,000, the usual SDLT is £1500. If you have to pay the extra tax you will be paying £7500 ( £1500 + £6000 extra tax).
Please note that if you are buying your first property, the extra tax will not be payable. If you are selling your main residence and buying a replacement main residence the extra tax will not be payable. For other situations, please have a look at the scenarios set out below. For any further advice please get in touch with us.
How to check if a purchase of a property by an individual is liable for the higher rates.
How to check if a purchase of a property by an individual is liable for the higher rates
When the higher rates will apply
The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property.
Example 3: X sells a property which was her main residence and purchases a new residential property. At the end of the day of the transaction she has one property, so X will not pay the higher rates of SDLT.
Example 4: Y is purchasing his first property. At the end of the day of the transaction he owns one property, so he will not pay the higher rates of SDLT. This is regardless of whether Y intends to use it as a main residence or, for example, a rental property.
Example 5: K, who lives in rented accommodation, sells the only residential property he owns, a buy-to-let, and purchases another buy-to-let. At the end of the day of the transaction he owns one property, so he will not pay the higher rates of SDLT.
If at the end of the day of the transaction an individual purchaser owns two or more residential properties, whether the purchaser pays the higher rates or not will depend on whether they are replacing their main residence (further details on what is a main residence are given below).
If the purchaser has sold a previous main residence within 18 months before the day of the transaction and the transaction is a purchase of a new main residence, the purchaser will be considered to be replacing a main residence. Where an individual is replacing a main residence the higher rates of SDLT will not apply.
However, if the purchaser is not replacing a main residence (either because they have not sold a previous main residence within the last 18 months or the property being acquired is not a new main residence), the higher rates will apply.
Recognising that there may be certain circumstances where purchasers may end up in difficult circumstances, some purchasers will be eligible for a refund of the additional SDLT paid – this is discussed in more detail below.
Example 6: Z already owns a main residence and is purchasing a property that will be used as a buy-to-let. At the end of the day of the transaction she owns two properties and has not replaced her main residence, so the higher rates will apply.
Example 7: A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply.
Example 8: H owns a main residence. He is purchasing a new main residence, but rather than selling his previous main residence he will rent it out. At the end of the day of the transaction H owns two properties and is not replacing a main residence (as he is not selling his previous main residence), so the higher rates will apply.
Example 9: N purchases her first property, which she will use as a buy-to-let. At the end of the day of the transaction she owns one property, so she will not pay the higher rates of SDLT, even though she is not using it as her main residence.
Two years later, N purchases a residential property which she will use as her main residence, but she decides to keep her buy-to-let property. In this instance, as she has two properties at the end of the day of the transaction and has not replaced a main residence (as she has not sold a previous main residence), the higher rates will apply.Example 10: O is a buy-to-let investor with 10 residential properties in his portfolio. He also owns one residential property which he uses as his main residence. He decides to sell his previous main residence and purchase a new main residence.
At the end of the day of the transaction, he owns 11 properties – his new main residence and his 10 buy-to-let properties. However, as he has replaced his main residence he will not pay the higher rates of SDLT.
Married couples and civil partners
Married couples and civil partners who own one property at the end of the day of a transaction will not pay the higher rates of SDLT. However, if either of them owns more than one residential property they may pay the higher rates when purchasing another property.
The government will treat married couples and civil partners living together as one unit. This is consistent with other areas of the tax system including Capital Gains Tax private residence relief where married couples are entitled to relief on one residence between them.
This means that:
- married couples and civil partners may own one main residence between them at any one time for the purposes of the higher rates
- property owned by either partner (and any minor children) will be relevant when determining if an additional property is being purchased or not. Therefore, an individual
- buying a property may be liable for the higher rates if his or her spouse or civil partner has an existing residential property. If the spouse or civil partner then sells that
- residential property they may be able to claim a refund
Married couples and civil partners are treated as living together, and therefore as one unit, unless they are separated:
- under a court order; or
- by a formal Deed of Separation executed under seal.
In each case the marriage or civil partnership must have broken down. Where a married couple or civil partners sometimes live apart (but the relationship has not broken down), which property is the couple’s main residence will need to be determined by the facts (more detail is available in section 2.8).
Example 13: Mr and Mrs I own a main residence together. They decide to purchase a second home jointly. At the end of the day of the transaction they own more than one residential property and are not replacing their main residence, so the higher rates will apply.
Example 14: Mr and Mrs L own two residential properties jointly. Although they spend time in both, only one of these properties is their main residence. If they sell the residential property that is their main residence and purchase a new main residence, they will not pay the higher rates, as at the end of the day of the transaction they own two properties but are replacing their main residence.
However, if they sell the property that is not their main residence, their second home, and purchase another second home, they will pay the higher rates, as at the end of the day of the transaction they own two residential properties and have not replaced their main residence.
Example 15: Mr and Mrs M are married. Mr M owns a home (which he purchased on his own before he was married) where the couple live as their main residence. Mrs M then buys a property to be rented out. At the end of the day of the transaction they own more than one residential property and are not replacing their main residence, so the higher rates will apply.
Example 16: Mr A marries Mr B. They each own a property (which they purchased individually before they were married and used as their respective main homes). Mr B then sells his former main home and purchases a new property to rent out.
At the end of the day of the transaction Mr A and Mr B own more than one residential property and are not replacing their main residence, so the higher rates will apply.Example 17: Ms C and Ms D are in a civil partnership. Ms C owns a property (which she purchased on her own before her civil partnership) where they live together as their main residence. However, Ms C and Ms D decide to separate. After they have separated under a court order, Ms D decides to purchase a property.
At the end of the day of the transaction Ms D owns one residential property, so the higher rates will not apply.
There are many scenarios where two or more people may own or purchase property jointly.
The government proposes that if, at the end of the day of a transaction, any of the joint purchasers has two or more properties and is not replacing a main residence, the higher rates will apply to the entire consideration for the transaction. This provides simplicity and aligns with other areas of the tax system.
However, as the purchased property may be a first property for one or more of the joint purchasers, the government is keen to hear from respondents as to whether this is the fairest outcome.
Example 18: F and G own a property jointly. F decides to purchase a buy-to-let property on his own. At the end of the day of the transaction he owns two properties and has not replaced his main residence, so the higher rates of SDLT will apply.
Example 19: B and C are purchasing a property together. This will be B’s first property, but C owns another property that she is not selling. For C, this will be an additional property as, at the end of the day of the transaction, she will own two properties and is not replacing a main residence. Therefore, the higher rates of SDLT will apply.
Purchasing a property for children to live in
The government appreciates that in many cases individuals and couples may help their children to get onto the property ladder. Whether the higher rates of SDLT will apply will depend on the structure of any transaction, and in particular who owns the property purchased.
Example 20: Mr and Mrs J own a main residence together. They decide to purchase a property for their children to live in. At the end of the day of the transaction Mr and Mrs J own more than one residential property and are not replacing their main residence, so the higher rates will apply.
Example 21: I owns one residential property. He decides to purchase another property jointly with his daughter. The property will be his daughter’s first property. At the end of the day of the transaction, I owns more than one residential property and has not replaced his main residence, so the higher rates will apply.
Example 22: T helps her son, S, purchase his first residential property. She gives him money towards a deposit and acts as a guarantor on the mortgage, but will not jointly own the property with him. At the end of the day of the transaction S will own one property, so the higher rates will not apply.
Determining whether a purchaser is replacing an only or main residence
Where a purchaser (or, in the case of joint purchasers, all purchasers) own one property at the end of the day of a transaction they will not pay the higher rates. Purchasers will only need to determine whether they have replaced a main residence if they own two or more properties at the end of the day of the transaction.
In that situation, a purchaser will pay the higher rates of SDLT if they are not replacing their main residence. If they are replacing their main residence, they will not pay the higher rates.In most cases, where individuals move house they may purchase and sell property on the same day (for example, if they are involved in a chain of transactions). However in some circumstances people may sell their old main residence some time before, or some time after, purchasing a new main residence.
These situations are considered in more detail below. Where an individual sells their previous main residence after purchasing a new main residence, a refund of the higher rates may be claimed. This is discussed further in section below.
Most individuals only have one residence at any given time. Where an individual has more than one property, in most cases it will be clear which one is the main residence.
For example where an individual owns two properties, one which they live in and one which they let out.
Individuals will not be able to elect which of their residences is their main residence and therefore the treatment of a main residence for the purposes of the higher rates of SDLT may differ from the treatment for capital gains tax.
The government’s view is that any elective treatment for SDLT may reduce uncertainty but it would be open to abuse and on balance is not justified. Instead, the government proposes that whether a property is a main residence will be based on fact.
HMRC will take into account a number of factors when considering whether a given property is an individual’s main residence. These will include:
- where the individual and their family spends their time;
- if the individual has children, where they go to school;
- at which residence the individual is registered to vote;
- where the individual works;
- the location and degree of furnishing and location of moveable possessions; and
- the correspondence and registration addresses given to various organisations.
In most cases the position will be clear and few factors will need to be considered. For example, where a married couple own two properties, one of which is convenient for their work and their children’s school and where they spend most of their time, and a holiday home which they visit occasionally, the former property would be their main residence.
The government proposes a two stage test to determine whether a purchase of a residential property is a replacement of a main residence or not. The first is whether, at the time of the transaction, a property sold in the last 18 months was the only or main residence of the individual. The second is whether the purchaser of the new property intends to occupy that property as their only or main residence.
When considering the first stage of the test, the property being sold must have been the only or main residence of the purchaser at some point in the 18 months before the purchase of the new property. In the majority of cases, an individual owns only one residence throughout a period, and it is this residence that will be their only or main residence.
Where an individual has more than one residence, which of these was their main residence will be a question of fact.
The second stage of the test is prospective and based on whether the purchaser intends to use the newly purchased property as their only or main residence. Where an individual has made plans at the date of purchase to move into the new property as their only residence, it will be obvious that the intention test is met.
Where evidence clearly shows that either another property will continue to be their main residence or that the property is purchased for some other purpose (such as use of a buy-to-let mortgage or other evidence of an intention to market the property for rent) the transaction will not be a replacement of a main residence.
Delay between sale of a previous main residence and purchase of a new one
The government appreciates there may be circumstances where an individual sells a property which was their only or main residence, but there is then a period before they purchase their new main residence. The government does not want to disadvantage people in those circumstances.
The government believes that there should be a maximum 18 month period between sale of a previous main residence and purchase of a new main residence for the purpose of determining whether the higher rates apply.
The government is of the view that this is a sufficient period in the vast majority of cases.Example 23: G sold a property which was his main residence 3 months ago. He still owns another property which he lets out. Since the sale of his main residence he has lived in rented accommodation.
G then purchases a new residential property which he intends to use as a main residence.
At the end of the day of the transaction, he has two properties, but as he is replacing his main residence (he is purchasing a new main residence within 18 months of selling his previous main residence), the higher rates will not apply.
Example 24: J owns two properties, a main residence and a holiday home. He decides to move into his holiday home as his new main residence, keeping his old main residence to let out.
3 months later, J sells his previous main residence and purchases a smaller property.
At the end of the day of the transaction, J has two properties, and whether the higher rates will apply will depend on whether J is replacing a main residence.
If J intends to move into the newly purchased property as his new main residence, the higher rates will not apply.
Overlap between purchase of new main residence and sale of previous main residence
In some circumstances, individuals will purchase a new main residence before disposing of their previous main residence. This may be intended, such as where multiple properties are owned temporarily due to employment or family reasons.
In some circumstances it may be unintended, such as where a purchaser was involved in a chain of transactions and the sale of a previous main residence fell through, but the purchaser proceeds on the purchase of their new main residence.
For purchasers who experience a temporary overlap between the purchase of a new main residence and the sale of a previous one, the government does not want to increase the overall tax burden.
In these situations, at the end of the day of the purchase of a new main residence the purchaser will own two or more properties and will not have replaced their previous main residence, as their previous main residence has not yet been sold.
It may be difficult to determine whether an individual has an intention to sell their previous residential property at this point, and a careful balance needs to be struck by the government to ensure that the tax system remains robust to tax avoidance and abuse.
Therefore, the government proposes that the higher rates of SDLT should apply to such transactions. To ensure fairness, the government proposes to introduce a refund mechanism for those who sell their previous main residence within 18 months of the purchase of the new main residence.
Refund upon sale of a previous main residence
This refund will be on the difference between the amount of SDLT paid under the higher rates and the amount of SDLT that would have been due under the normal residential SDLT rates.This will mean that, after the refund, the purchaser will have paid the normal residential rates of SDLT.
A refund will be allowed in situations where a purchaser paid the higher rates of SDLT on the purchase of a new main residence and within 18 months disposes of a previous main residence.Example 25: Mr and Mrs K own one property, which is their main residence. They decide to purchase another property, which they will use as their main residence, but decide not to sell their previous main residence. At the end of the day of the transaction they own two properties and have not replaced their main residence, so the higher rates will apply.
Two months after this purchase, they sell their former main residence. Mr and Mrs K have disposed of a former main residence within 18 months of purchasing a new main residence. As such, upon sale of their previous main residence they will be eligible for a refund.
Example 26: D and E are purchasing a property jointly which is intended to be their main residence. E already owns a property, which was previously used as a main residence, which he will not have sold at the time of purchase.
Upon purchase, as E will own two properties and has not replaced his main residence, the higher rates will apply. However, E then sells his previous main residence 12 months later. At this point, D and E will be eligible for a refund.
Example 27: F is selling her main residence and purchasing a new one. However, her chain unexpectedly breaks down, meaning at the end of the day of the transaction she owns two properties and has not replaced her main residence.
Therefore, she will pay the higher rates. A month later, she sells her previous main residence. At this point F will be eligible for a refund.
Example 28: Q owns a buy-to-let property. He decides to purchase a new residential property, but does not sell his existing property. At the end of the day of the transaction he owns two residential properties and has not replaced his main residence, so he will pay the higher rates of SDLT.
5 months later Q sells his buy-to-let property. As this buy-to-let property was not his main residence, he has not replaced his main residence. Therefore, he will not be eligible for a refund.
Property owned and purchased outside of England, Wales and Northern Ireland
SDLT only applies to purchases of land and property in England, Wales and Northern Ireland. A purchase of residential property located outside these areas will not pay SDLT, instead it may be liable for any property transactions tax in that jurisdiction.
Example 30: R owns a property in Wales, which she uses as a main residence. She decides to purchase a buy-to-let property in Scotland. SDLT is devolved to Scotland, so she will not pay SDLT, but the Land and Buildings Transactions Tax (LBTT) on the purchase of the buy-to-let property. The rates and structure for LBTT are set by the Scottish Government.
However, property owned globally will be relevant in determining whether a property purchased in England, Wales or Northern Ireland is an additional property. This means that if someone is purchasing their first or only property in England, Wales or Northern Ireland, they may pay the higher rates if they own property outside these areas.
Example 31: S owns a property in Scotland, which she uses as a main residence. She is purchasing her first property in England, Wales or Northern Ireland, which she will use as a second home. At the end of the day of the transaction she owns two or more properties globally and is not replacing her main residence, so she will pay the higher rates of SDLT.
Example 32: T owns a property outside England, Wales and Northern Ireland which he uses as a main residence. He decides to sell that property and purchase a residential property in England, Wales or Northern Ireland. At the end of the day of the transaction he owns one residential property globally, so he will not pay the higher rates of SDLT.
Furnished holiday lets
The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply.
Treatment of non-residential property purchases
The higher rates of SDLT will only apply to purchases of residential property. The definition of residential property and non-residential property will not change due to the introduction of these higher rates. This means that a purchaser of a non-residential property will never pay the higher rates of SDLT, even if it is later converted into residential property.
Non-residential property includes:
- commercial property (such as shops or offices);
- agricultural land;
- bare land (even where that land may subsequently be used for residential purposes);
- any other land or property which is not used as a residence;
- 6 or more residential properties bought in a single transaction; and
- A mixed use property (one with both residential and non-residential elements).
Mixed use transactions, that is the purchase of residential and non-residential properties together in a single transaction, is currently considered a non-residential transaction for SDLT purposes. The government does not intend to change that treatment.
Treatment of multiple residential property purchases
Where multiple residential properties are purchased in a single or linked transaction, that transaction is eligible for multiple dwellings relief (MDR).
Under MDR, the residential rates of SDLT are applied to the average price of each property (multiplied by the number of properties purchased) rather than applying to the entire transaction value.This brings the total SDLT due closer to the amount that would be due if the same properties had been purchased separately.
Where 6 or more residential properties are bought together, the purchaser can choose whether to apply the non-residential rates of SDLT (to the entire transaction value) or to choose the residential rates of SDLT with MDR applied.
The government intends to retain this system for the purchase of multiple residential properties.
When the new higher rates come into force this will mean purchases of multiple residential properties in one transaction, where some or all of them are additional properties, will be eligible for multiple dwellings relief, with the higher rates applied to the average price of the dwelling purchased.
For purchases of 6 or more residential properties in the same transaction, the purchaser will be able to choose whether multiple dwellings relief, with the higher rates, will apply, or the non-residential rates (which will be charged on the total purchase price).
Example 37: A developer purchases 10 additional residential properties in one transaction, for a total of £3 million. The average purchase price is therefore £300,000. He is purchasing 6 or more residential properties in the same transaction, so he can chose whether multiple dwellings relief, with the higher rates, will apply, or the non-residential rates.
Multiple dwellings relief:
The SDLT due, with the higher rates applied, on the average purchase price of £300,000 is £14,000. This is then multiplied by the number of properties (10) to give the total amount of SDLT due – £140,000.
The non-residential rates apply to the total transaction value – £3 million. As this is in the 4% band, SDLT will be due at 4% on £3 million – £120,000. In this instance, the developer will chose to pay under the non-residential rates.
The treatment of trusts and settlements:
Property is sometimes held by trustees in trusts, and to ensure the fairness and integrity of the tax regime the higher rates of SDLT will apply to some purchases made by trusts.
Purchases by trustees of bare trusts will continue to be treated as if they are made by the beneficial owner and there will be no difference in treatment compared to the beneficial owner purchasing themselves.
Trust that are not bare trusts could be used as a vehicle to hold existing property so that an individual appears to have no other interests in property at the end of the day of a property purchase.
In order to prevent this, the government intends to treat certain beneficiaries of trusts as owning interests in a residential property if the trust owns an interest in a residential property.
The government considers that beneficiaries with a life interest or interest in possession under a trust should be treated in this way.
Less immediate or certain interests like interests in remainder or discretionary interests in property could give individuals a financial interest in a property. The government considers that generally, interests in remainder and discretionary interests are too remote or insignificant to be counted as an interest held by the beneficiary.
In order to not disadvantage those whose homes are held in trust because of either inheritance or because the beneficiary is disabled, the government does not want the higher rates to apply to either the purchase of an individual beneficiary’s residence where no other property is owned by the individual or to the replacement of a beneficiary’s only or main residence.
It is the intention, so far as possible for the purposes of determining whether the higher rate is payable, to treat purchases by trustees for beneficiaries with life interests or interests in possession as if the purchase were made by the individual themselves.
Purchases by trustees where beneficiaries have no interest in possession over the property will be liable to the higher rates.
Example 38: A, the trustee of a new settlement for the benefit of B for life, remainder to C, purchases a property. B is an individual who owns no existing property. B is entitled to occupy the purchased property under the terms of the settlement. This will be B’s only property at the end of the day of the transaction, so A will not pay the higher rates of SDLT.
This is the case regardless of whether C owns a property. After this, B purchases a property in his own right. At the end of the day of the transaction, B has interest in two properties (as B’s interest in possession in respect of the property owned by the trust counts), so B will pay the higher rates of SDLT.Example 39: D, the trustee of a discretionary settlement for the benefit of individuals, E, F and G, purchases a property. None of the beneficiaries have a right to occupy the property under the trust, nor can they require D to pay them any income from the property.
There are no beneficiaries with a right to the income from the property or entitled to occupy the property under the terms of the settlement and so D will pay the higher rates of SDLT. Later, E purchases his first property. At the end of the day of the transaction, he owns one property. E’s possible future benefit from the trust does not amount to an interest in an existing property for the purposes of determining whether the higher rates apply, so E does not pay the higher rates of SDLT.Example 40: H, the trustee of a settlement for the benefit of J for life, remainder to K, owns a property which is J’s only residence. H also owns an investment property. H sells J’s main residence and then purchases a new residence that J intends to occupy as his only residence.
At the end of the day of the transaction, J has an interest in two properties (the new main residence and the investment property), but as his main residence has been replaced, H will not pay the higher rates of SDLT.The government recognises that the higher rates of SDLT will create additional requirements for agents acting for purchasers. The government expects most of the additional information that needs to be obtained from purchasers will be straightforward and uncontroversial.
For example, questions about whether the purchaser (or any joint purchaser) will own more than one residential property at the end of the day of the transaction will need to be considered. This information will need to be kept up to date by the purchaser and the conveyancer during the period between instruction and completion.
One piece of information which will be required from purchasers is whether any newly purchased residential property will be a main residence and replacing a previous main residence. This would be required in a situation where a purchaser with multiple properties at the end of the day of a transaction would not pay the higher rates.
In order to determine this, agents will need to determine whether the purchaser has disposed of any residential property within 18 months of the new transaction and whether or not that disposal was a disposal of the purchaser’s only or main residence.
Ultimate responsibility for the accuracy of an SDLT return remains with the purchaser and HMRC will provide guidance on how purchasers can determine whether the disposal of a property can be considered as a disposal of a main residence.
Conveyancers may not be best placed to judge whether a purchaser is correct about which property has been their main home. The government recognises that conveyancers are a key part of ensuring SDLT compliance and are keen to maintain this.
The government is considering how it can help conveyancers other than by providing written guidance, calculators and publicising the consequences for purchases of getting things wrong.
We began by explaining the process of dealing with the initial issues that would arise, such as funeral costs and the Probate process.
An elderly client lost his wife after her battle with cancer. He came to see us feeling utterly distraught, and told us that he’d been married to his childhood sweetheart for over thirty years. They had children and she had left a will.
We began by explaining the process of dealing with the initial issues that would arise, such as funeral costs and the Probate process.
Wajid, one of our most experienced solicitors, assisted by giving him details of contacts in the area that might be able to help, such as funeral directors, and requested the original will and death certificate to be forwarded to the firm. Wajid suggested that work on the case be started after the funeral and the client agreed.
When the client returned Wajid explained the process of applying for a Grant of Probate in great detail. There were various assets and liabilities to be administered and Wajid dealt with this on the client’s behalf.
First, a list of the assets and liabilities were made and the solicitor dealt with the payment of the funeral costs. This took a huge amount of pressure off the client, who was finding it difficult to cope with so many things happening in such a short period of time.
Wajid was able to explain exactly what was required and keep him informed on a regular basis. He was given regular updates and kept informed about the legal costs.
Once the Grant of Probate was obtained and the estate administered, the client explained that he would not have known what to do without our help. He was very grateful to have found someone that would not only act professionally and guide him through the process, but also understand the personal and practical issues that arise from the death of a loved one.Read More
We believe in a proactive approach with our clients and explain any legal documents in detail, which is often very useful for first time buyers.
A first time buyer visited the office to discuss with Wajid the process of making an offer on a property. He had left University and was in the first year of his first job.
Wajid advised him that he should check the costs involved and his finances first before referring him to an independent Financial Adviser for mortgage advice. The clients have an option of using their own advisers or we have a database of reliable contacts.
Wajid then explained the process to the client, as well as the intricacies of what should be expected at each stage.
The client consulted a Mortgage Adviser, who confirm that he could proceed and put an offer on the property, which he did so on returning to us. The offer was successful and we started the legal process. Wajid gathered all the necessary documents (such as identification), obtained draft contract package from the sellers Solicitors and forwarded copies on to the client, advising the client throughout the process.
We believe in a proactive approach with our clients and explain any legal documents in detail, which is often very useful for first time buyers.
Wajid then raised enquiries with the seller’s solicitors and obtained searches on behalf of the client, as well as corresponding with the mortgage broker until the mortgage offer was received.
The client was updated on a regular basis throughout the transaction, and upon receipt of all enquiries, searches and mortgage offer, Wajid forwarded a Title Report and invited him to the office.
Wajid explained the mortgage offer in detail before the client confirmed that he would like to proceed, fully confident that he understood all the facts and details about the property he was about to purchase.
The client didn’t realise how simple the process could be and was really grateful for the information we gave him, since he knew what would happen at every stage both before and after completion of the purchase.Read More
What is a Trust?
A Trust is a legal arrangement, which enables its creator (‘the Settlor/Testator’) to leave your assets in the care of another person or persons (‘the Trustees’) The Trustees manage these assets for the benefit of other people or organisations, whom you support (‘the Beneficiaries’). In its simplest terms a Trust is ‘a gift with strings attached’.
A Trust is the most common way of providing for a loved-one, who would be unable to manage alone or maybe irresponsible with money, or even be a child or someone suffering from mental health problems. These Trusts are normally set up by a person’s Will on their death but they can also be set up during a person’s lifetime.
What type of Trusts are there?
Essentially there are five types of modern Trusts, which are:
- A Discretionary Trust
- Accumulation and Maintenance Trusts
- A Life-interest Trust
- Protected Trusts
- A Bare Trust
Choosing a Trust
The type of Trust that you choose and how it is worded will depend upon your circumstances and your objectives. Trusts are generally used in wills as a tax planning exercise, as well as ensuring provision for those loved ones who may not be capable of making the right decisions themselves. Trusts can become quite complicated so it is very important that professional advice is sought from an experienced lawyer.
A Discretionary Trust is where your Trustee can use the capital and/or the income of your assets for the benefit of a number of beneficiaries – this is known as the ‘Class of Beneficiaries’. These people are chosen by you, as are your Trustees. No beneficiary has any right to require the Trustees to exercise their discretion in their favour. This means that Discretionary Trusts are particularly effective in avoiding means testing. If, for example, one of the beneficiaries was in receipt of means tested benefit, the Trustees would be able to distribute funds to that person, perhaps by paying for a holiday, without those payments being taken into account in any means testing. A Trust of this kind can continue for any period between three months to 80 years from the date of its creation. It must contain a final provision, which states who will be entitled to anything which remains in the Trust when it does come to an end. These Trusts can be found in any number of situations, but most frequently in:
- Wills for Inheritance Tax planning purposes.
- Trusts set up during your lifetime for Inheritance Tax planning.
- Trusts to hold benefits of insurance policies.
- Trusts to hold benefits arising under Personal Pension Plan or a Death in Service benefit.
Accumulation and Maintenance Trusts
These are a special form of Discretionary Trust, set up for the benefit of child beneficiaries. There are special rules set down by the Inland Revenue that give the Trust taxation advantages. They work by accumulating any income arising from within the Trust, other than income used to provide for the maintenance, education or benefit of an infant beneficiary. These Trusts are often used in practice where grandparents wish to benefit grandchildren.
Life Interest Trusts
This type of Trust is where a beneficiary has an entitlement to receive the income from the Trust’s property or investment during their lifetime and then on their death that interest passes on to other persons or charities of your choice. The basic structure of such a Trust is the payment or entitlement to payment of income from the Trust as it arises to one or more people (‘the life tenants’) during his or her lifetime. On the death of the life tenants the capital and income pass to other individuals (‘the remaindermen’) of your choice.
Any property or funds held in trust for life will not be treated as a capital resource when entitlement to State benefits is assessed. However, any income arising from the Trust will be taken into account if the life tenant is in receipt of means tested benefits.
These are a special type of Life Interest Trusts known as Protected or more traditionally Protective Trusts. Historically these were used by parents concerned that a financially extravagant child may become insolvent or be too easily influenced by others to give away property or money.
This type of Trust has now become popular because it combines the advantage of the flexibility that a Discretionary Trust provides together with the certainty of provision of income to the main beneficiary that a Life Interest Trust provides. This is particularly useful where parents wish to safeguard the financial future of a child who, although not legally incapable of managing their own affairs, may need protection from situations that could result from their mental difficulties.
Under this type of Trust the money or property is given to the Trustees with the instructions to them that the income that arises from it would then be paid to the main beneficiary, either for their life or alternatively for a fixed period of time (which is specified). If the beneficiary tries to sell an asset from the Trust, the provisions of the Trustee Act 1925 apply and their right to receive the income under the Trust will be stopped. The Trustees then hold the income on a Discretionary Trust for the benefit of the beneficiary, their spouse (if any) and children (if any). This effectively prevents the beneficiary from selling their right to the income. In the unlikely event that the beneficiary becomes bankrupt the same provisions would apply, thus protecting the Fund.
As in the Life Interest Trust the assets left under a Protected Trust do not belong to the beneficiary and therefore will not be treated as a capital resource when entitlement to State Benefit is assessed. However, the income arising from the Trust will be taken into account in calculating Means Tested Benefit.
Finally, you must state in the Trust who would benefit from the assets after the death of the main beneficiary and this could be any of your other relatives, friends or even a charity or charities.
This is where all of the funds are held by Trustees for the benefit of the proper owner. Bare Trusts generally occur when the main part of another Trust has come to an end, but the monies and properties have to be held before they are paid over to the beneficiaries. These Trusts are rarely used in tax planning matters, but are useful in some circumstances.
Finally, there are specialist types of Trust which are used for the benefit of mentally incapable persons and further information in these can be obtained from MIND (the National Association for Mental Health), The Down’s Syndrome Association or MENCAP. MENCAP in particular have their own special type of Trust for the benefit of mentally incapable relatives. Details can be obtained direct from them – the address is at the end of this fact sheet.
Understanding how a Trust works
It is important that you choose people to act as Trustees carefully, as they should be aware of your loved ones’ needs, as well as being able to look after the Trust fund financially. You can appoint up to four Trustees, but the minimum number possible is two. Acting as a Trustee can take up considerable time and effort and it is important that you get that person’s agreement before appointing them. You can appoint a stand-in Trustee who could then act if anything happened to one of your original Trustees during the lifetime of the Trust.
Powers of the Trustees
Whatever type of Trust you decide to set up you should consider giving your Trustee the widest possible powers to deal with the assets and your legal adviser will be able to give you all the details of these. These will probably include powers of investment and insurance and also directions as to how the money should be applied for the benefit of your loved ones. Your legal adviser will also be able to advise on the Statutory Provisions of the new Trustee Act 2000 which will apply.
Letters of Wishes
To assist your Trustees in making decisions you can write a letter to them, explaining why the Trust was set up and what you want it to achieve. Particularly in the case of a Discretionary Trust, your letter can also include your wishes as to how you would like the Trust fund to be used for all of the beneficiaries and whether it should favour any one or more of them.
It is important to realise that a letter of wishes is not legally binding on your Trustees but it is particularly helpful to them if your Trust is set up on your death by in your Will and you will not then be available to offer them guidance.
Taxation of Trusts
The different types of Trusts are all taxed in different ways. The detail of how each trust would be taxed is beyond the scope of this introductory fact sheet. However, our experienced advisers will be able to go through the taxation implications in detail with you in relation to the type of trust that you may be considering. If you wish to find out more detail yourself the Inland Revenue produce a useful booklet in their Personal Taxpayer Series entitled ‘Trusts – An Introduction’. This leaflet can be obtained direct from the Inland Revenue at the address given at the end of this fact sheet.
MENCAP produce a useful booklet entitled ‘Leaving Money by Will to People with Learning Disabilities’. Copies can be obtained free of charge by writing to:MENCAP 123 Golden Lane London EC1Y 0RT
Phone: 020 7454 0454
The Down’s syndrome Association produce a detailed booklet entitled ‘A guide to families wishing to make legal provision for a learning disabled member’. Copies can be obtained free of charge by writing to:Down’s Syndrome Association Langdon Down Centre 2a Langdon Park Teddington TW11 90S
Phone: 0845 230 0372
MIND, the mental health charity, also produce a special free booklet entitled ‘Making Provision’. Copies of this publication can be obtained free of charge by writing to:MIND (The National Association for Mental Health) 15019 Broadway London E15 4BQ
Phone: 020 8519 2122
The Inland Revenue produce a leaflet IR152 – ‘Trusts – An Introduction’ (Personal Taxpayers Series) which can be obtained free of charge from:Inland Revenue Order Line PO Box 37 St Austell PL25 5YN
Or from their website: www.inlandrevenue.gov.uk/leaflets
The Capital Taxes Office also produce the following booklets:
- IHT16 ‘Inheritance Tax – Settled Property’
- Explaining the rules for charging Inheritance Tax on assets included in a settlement or trust.
- IHT3 ‘Inheritance Tax An Introduction’
- Explaining about Inheritance Tax in general.
Copies of these can be obtained free of charge from:Capital Taxes Office Ferrers House PO Box 38 Castle Meadow Road Nottingham NG2 1BB
Phone: 0115 974 2400
Or can be downloaded via the website: www.inlandrevenue.gov.uk/cto/leaflets
We believe the information contained herein to be correct as at 20th September 2008. Whilst all possible care is taken in the compilation and presentation of this fact sheet, no responsibility for loss, occasioned by any person acting or refraining from acting as a result of the material in the fact sheet, can be accepted by the firm or the author.
You’ve Worked Hard! You’ve Paid Your Taxes!
- Are you worried about retirement care costs?
- Should you make a tax efficient Will?
- Do you need to select the right person to administer your affairs?
- Are you claiming all the retirement benefits due to you?
- Should you start planning your retirement now?
- How will decisions about your future save money and help your family?
You can do something
If you have asked yourself any of these questions and want answers, then talk to us. We can help with Wills, Lasting Powers of Attorney, Retirement and Estate Planning, Welfare Benefits and Investments for the present and the future.
The practice of lifetime authorities came of age in the Nineteenth Century with the development of trust laws and incorporation of businesses and the idea that ownership and management of property could be separated. This arose of necessity with the expansion of wealth restricted to a minority set against feudal laws relating to property and the principle of lifetime monogamy. So it was that women only became entitled to own land in 1857 and divorce required an Act of Parliament.
Some people like to think of Powers of Attorney as lifetime wills and there are marked similarities. The rules for making wills date from 1837 and are simply for making appointments to handle our affairs after death and distributing wealth. Being so limited in scope they only take effect after death and do not allow for more modern developments in life such as cohabitation, divorce, step parenting, fragmented families, etc. They are also private with no need to register and do not deal with lifetime considerations – pets, organ donations, medical procedures to name but a few (although they could).
Development of Powers of Attorney
Until 1971 Powers of Attorney had to be personally ratified so they were difficult to rely on because it was not known if the Donor had lost capacity. After that time legislation gave third parties a measure of protection if transactions under the power were conducted within twelve months and thereafter, provided the Donee gave a sworn statement that he knew of no circumstances in which the power had lapsed.
The Mental Health Acts provided for an application to be made to the Court of Protection for a Receivership order based on medical evidence of permanent mental incapacity. Because such orders require all assets to be placed under the control of the Court they are unwieldy for families and expensive. They are also inappropriate in cases of transient or temporary incapacity, e.g. stroke patients. What was needed was a user friendly form of authority which could be used if and when necessary.
The Enduring Powers of Attorney Act 1986 provided for Powers made with full capacity to endure a period of incapacity with the need to register at the Court of Protection only if capacity was lost. The weakness of the scheme was that anyone dealing with the Attorney would not necessarily know if the Donor had lost capacity and whether registration had become necessary. It was estimated that only twenty per cent of powers were registered in circumstances when they should be although there was no evidence of widespread abuse. The creation of Enduring Powers was abolished on 1st October 2007 although existing powers continue to have legal force. However, they can only ever deal with property and financial matters.
The Mental Capacity Act 2005
The MCA was conceived in 1995 and came into force on 1st October 2007. The object of the Act is to:-
Maximise the capacity of those who lack capacity to make certain decisions for themselves, protect adults with mental incapacity issues from abuse and neglect, and, provide clarity for family, informal carers and professionals as to when they may act or make decisions for themselves.
To achieve this, the Act provides for a comprehensive framework for assisting those lacking capacity to make decisions for themselves to be taken properly on their behalf and in their best interests when they lack capacity. It rests on well established principles of ‘best interest’ and presumption of capacity. The Act endeavours to strike a delicate balance between respect for individual autonomy and the need to protect the vulnerable. Whether it achieves this remains to be seen.
The Act will affect a large range of people. It is estimated that over 700,000 in the UK suffer from dementia, and that this is expected to rise to around 840,000 by 2010. About 145,000 adults in England have severe and profound learning difficulties and at least 1.2 million have a minimum to moderate disability. It is thought that, at some point in their lives, roughly 1% of the UK population will suffer from schizophrenia, 1% will be subject to manic depression and some 5% will have some form of serious or clinical depression. The Act therefore has considerable application.
The key to understanding the Act lies in the supplementary Code of Practice. The Act specifically provides that ‘it is the duty of a person to have regard to any relevant code if he is acting in relation to a person who lacks capacity’. The person then mentioned includes donees of a Lasting Power of Attorney and Deputies appointed by the Court.
For the purposes of the Act a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.
A person is ‘unable to make a decision’ if he is unable:-
- To understand the information relevant to the decision
- To retain the information
- To use or weigh that information as part of the process of making the decision or
- To communicate his decision (whether by talking, use of sign language or any other means).
We now have a much clearer test of capacity as to whether or not a person lacks capacity. However, the Act goes on to say that a person is not to be regarded as unable to understand the information relevant to the decision if he is unable to understand an explanation of it given to him in a way that is appropriate to his circumstances (using simple language, visual aids or any other means). This is much more controversial since the Code of Practice makes it clear that when seeking to give explanations one can use methods designed to help stimulate memory recall and recognition in a person with dementia. Further, the fact that a person is unable to retain information relevant to a decision for a short time is not to be regarded as preventing him from making a decision. What this seems to boil down to is that, if someone can be helped to make a decision to retain information then they will not qualify for the appointment of a deputy and the protection which goes with such an appointment.
Receivers, Attorneys and Deputies all have a duty to act in the best interest of the Donor. The Act requires as far as reasonably practical to permit and encourage the Donor to participate or to improve his ability to participate, as fully as possible in any act done for him and any decision affecting him.
In addition, the person making the decision must consider so far as reasonably ascertainable:-
- The Patient’s past and present wishes and feelings (and in particular, any relevant written statement made by him when he had capacity),
- The Patient’s belief and values that would be likely to influence his decision if he had capacity and
- The other factors that he would be likely to consider if he were able to do so.
Again, the person making the decision must take into account (and if it is practical and appropriate to consult them), the views of:-
- Anyone named by the Patient as someone to be consulted on the matter in question or on matters of that kind
- Anyone engaged in caring for the person or interested in his welfare
- Any donee of the lasting power of attorney granted by the person and
- Any deputy appointed for the person by the Court
as to what the person’s best interests are and, in particular as the matters mentioned above.
The Code of Practice provides that where written statements are well thought out and considered they should carry particular weight. (Advanced directives)
Lasting Powers of Attorney
A basic distinction between LPAs and EPAs is that LPAs can authorise the Attorney to make decisions on the Donor’s behalf in respect of welfare matters as matters related to property and financial affairs. Thus, LPAs can authorise Attorneys to make decisions about medical treatment, residence and contact with other persons.
It is important to distinguish between welfare LPAs and financial LPAs. Crucially, property LPAs can be used whilst the Donor still has capacity. Welfare LPAs cannot. The latter can only be used when the Donor has lost capacity. Both kinds have to be registered with the Office of Public Guardianship (the administrative arm of the Court of Protection) before they can be used.
An interesting ‘twist’ on LPAs is that they need to include a certificate by a ‘prescribed person’ that in his opinion at the time when the Donor executes the instrument the Donor understood the purpose of the scope of the instrument, that no fraud or undue pressure is being used and that there is nothing else to prevent an LPA being created. A ‘prescribed person’ is someone who has known the Donor personally for at least two years OR is one of the following:
- A registered healthcare professional
- A registered social worker
- A barrister, solicitor or advocate
- An independent Mental Capacity Advocate
It cannot be:
- A family member of the Donor
- A donee of that power
- A donee of any other LPA or EPA made by the Donor (whether or not revoked)
- A family member of the Donee
- A director or employee of a trust corporation acting as a donee
- A business partner or employee of the Donor or the Donee
- An owner, director, manager or employee of any care home in which the Donee is living where the LPA is signed by a family member of any such person
Who must be notified
Donors must either:-
- Nominate up to 5 people who are to be notified or
- Confirm that no one is to be notified (in which case the statutory certificate must be given by two people).
Extent of Welfare Powers
The Code of Practice is not exclusive but does give the following examples:-
- Where the donor should live and with whom
- The Donor’s day-to-day care, including diet and dress
- Who the Donor may have contact with
- Consenting to or refusing medical examination and treatment on the Donor’s behalf
- Arrangements needed for the Donor to be given medical, dental or optical treatment
- Assessment for the provision of community care services
- Whether the Donor should take part in social activities, leisure activities, education and training
- The Donor’s personal correspondence and papers
- Rights of access to personal information about the Donor or
- Complaints about the Donor’s care or treatment
A welfare LPA will permit a donee to make all the decisions listed above. The Donor may specify or exclude certain powers. It can also be revoked provided the Donor has capacity to do so.
Restrictions on Deputies
‘Best interest’ is to be distinguished from ‘benefit’. Thus a carer Donee might want to arrange for a Donor to go into a care home to give the carer a rest. Such a step might not be for the Donor’s benefit (the change of routine might be unsettling) but it would clearly be in the Donor’s best interest for the carer to have a break.
There are a number of factors to be ignored or taken into account in decision making which include the following:
- Age, appearance and certain aspects of behaviour which might lead to discrimination are to be ignored
- The extent to which the Donee can participate in the decision (is this only ever applicable to financial powers?)
- Where the decision relates to life sustaining treatment the decision maker must not, in considering whether the treatment is in the Donor’s best interests, be motivated by a desire to bring about the Donor’s death. ‘Life sustaining treatment’ means treatment which in the view of a person providing healthcare for the person concerned is necessary to sustain life.
Effects on Doctors
- Has my patient made an LPA?
- What does the LPA say and how will it affect treatment of my patient?
- Assessments of Capacity?
- What if I am asked to be Certificate Provider?
- Should I encourage patients to make LPAs?