Question: Declaration of Trust for Sole Beneficial Ownership and Tax Liability in Ireland

[Thesearcher]

Hello, I’m hoping to get some thoughts on a property law and tax issue in Ireland before discussing with a solicitor. This might be considered a tax question however Declaration of Trust & Beneficial Ownership are based in law hence posting here.

If two legal owners of a property set up a Declaration of Trust where one of the owners will be the sole beneficial owner for tax purposes (i.e., receiving all rental income and being solely taxed on it), would this structure be compliant with revenue or might they have issues with it?

It seems to be more commonly done in the UK, but I’ve included the link below from Irish Legal Guide. Any thoughts on the practicalities, compliance with Revenue, and potential issues (e.g., Capital Gains Tax or anti-avoidance provisions) would be greatly appreciated.

Trusts Overview - Irish Legal Guide

Legal and Beneficial Ownership In most cases, the same person will be both legal and beneficial owner of property. In some cases, an arrangement may be made by which the legal owner will hold the property for one or more beneficial owners. In other cases, the law will deem that the legal owner...

legalguide.ie

 

[T McGibney]

If two legal owners of a property set up a Declaration of Trust where one of the owners will be the sole beneficial owner for tax purposes (i.e., receiving all rental income and being solely taxed on it), would this structure be compliant with revenue or might they have issues with it?

This sounds like a question way above the scope of an online discussion forum.

You probably need to engage a tax consultant, to see if all this will work, before going near a solicitor, to put it in place.

 

[torblednam]

Prefaced by saying IANAL, but I am a tax person.

If I understand correctly, you have a situation where two people jointly own (legally and beneficially) a property, and one of them wants to assign their beneficial ownership to the other, without transferring their legal ownership?

I presume there's no legal impediment to doing this, but for tax purposes there will be a disposal of the beneficial interest in the property, with exposure to:

• CGT on the disposal of a party's interest in a property (based on market value if the parties are connected or the transaction is otherwise not undertaken at arm's length)
• CAT, to the extent that the consideration for the transfer is less than the market value of the interest passing
• stamp duty (I presume), if there is a written deed effecting the transfer

 

[Thesearcher]

This sounds like a question way above the scope of an online discussion forum.

You probably need to engage a tax consultant, to see if all this will work, before going near a solicitor, to put it in place.

You are right, but good to get a general idea of it with different peoples views otherwise we're going in blind - hence the post. Thanks for responding

 

[Thesearcher]

Prefaced by saying IANAL, but I am a tax person.

If I understand correctly, you have a situation where two people jointly own (legally and beneficially) a property, and one of them wants to assign their beneficial ownership to the other, without transferring their legal ownership?

I presume there's no legal impediment to doing this, but for tax purposes there will be a disposal of the beneficial interest in the property, with exposure to:

• CGT on the disposal of a party's interest in a property (based on market value if the parties are connected or the transaction is otherwise not undertaken at arm's length)
• CAT, to the extent that the consideration for the transfer is less than the market value of the interest passing
• stamp duty (I presume), if there is a written deed effecting the transfer

Thanks Torblednam

CGT: If the property was recently purchased and there’s no gain or loss in value, it may not trigger CGT, but the transfer is still considered a disposal for tax purposes?

CAT: I assume CAT applies regardless of consideration, as it involves a transfer of beneficial ownership. Stamp duty would apply to the portion of the beneficial interest being transferred.

Warrants consultation with a tax accountant but good to get views on it

Thanks again

 

[T McGibney]

You are right, but good to get a general idea of it with different peoples views otherwise we're going in blind - hence the post. Thanks for responding

But you are going in blind. There may be an easier way to achieve your ultimate objective but high-level consultants rarely dispense highly technical advice in public and for free.

 

[Thesearcher]

But you are going in blind. There may be an easier way to achieve your ultimate objective but high-level consultants rarely dispense highly technical advice in public and for free.

Thanks, I get it and appreciated what you are saying. I like to research and asked questions first before meeting a professional so that I have at least a general idea and a handful of questions (right or wrong) that may help in a meeting.

 

[BerProp]

Hi Thesearcher, just wondering how you got on with the above?

My query is somewhat similar but relates to stamp duty only. Is stamp duty payable on the transfer of a beneficial interest in property? The transferee is the existing 100% registered owner of a property and they will now acquire a 25% beneficial interest (they are already the beneficial owner of the remaining 75%), will stamp duty be payable on this transfer of the 25% beneficial interest? My understanding is that no conveyance/instrument will be executed as transferee is already the 100% registered owner.

Any help appreciated,
thanks.

 

[TomEdison]

The transferee is the existing 100% registered owner of a property and they will now acquire a 25% beneficial interest (they are already the beneficial owner of the remaining 75%), will stamp duty be payable on this transfer of the 25% beneficial interest? My understanding is that no conveyance/instrument will be executed as transferee is already the 100% registered owner.

In general stamp duty is payable on the transfer of beneficial interests. There'll be a deed or declaration of some kind by which the owner of the 25% beneficial interest releases or assigns their interest to the the registered owner. I don't see why that wouldn't be stampable.