Mark McLaughlin looks at the beneficial ownership of jointly-owned property where one of the owners purchases additional interests in the same property from another joint owner.
Establishing the legal owner of property is relatively straightforward, as details are generally available from the Land Registry (NB this article relates to a property in England, Wales or Northern Ireland, but not Scotland).
What’s the difference?
For tax purposes, it may be necessary to consider not only the legal ownership of property but beneficial ownership; the property owners will not necessarily be identical. The distinction can be important. For example, the capital gains tax (CGT) and inheritance tax (IHT) regimes are generally concerned with property to which a person is ‘beneficially entitled’, and not necessarily with legal ownership.
Unfortunately, no single factor is likely to determine beneficial ownership in most cases. HM Revenue and Customs (HMRC) lists the following as indicators that a person is a beneficial owner of land for CGT purposes (see HMRC’s Capital Gains Manual at CG70230):
-
holding legal title;
-
occupying the land;
-
receiving rental income from the land;
-
providing the funds to purchase the land; or
-
receipt of sale proceeds from disposal of the land.
Furthermore, in disputes over beneficial ownership (e.g., if the property deeds do not also establish the beneficial interest), aside from title documents and land registry certificates, HMRC will seek evidence such as the following (see HMRC’s Inheritance Tax Manual at IHTM15044):
-
other documents from when the ownership commenced;
-
later documents which evidence earlier intentions;
-
statements from the owners;
-
statements from others; and
-
evidence from the conduct of the joint owners when ownership began.
However, a lack of evidence can lead to disputes with HMRC.
Changes in beneficial ownership
For example, in Rooke v Revenue and Customs [2024] UKFTT 403 (TC), in October 1999, the taxpayer acquired a 35.29% interest in the beneficial ownership of a flat in London for £90,000. The flat was owned by the taxpayer and her brother. In June 2003, the taxpayer acquired a further 14.71% interest in the beneficial ownership of the flat for £44,865. Her total beneficial ownership share was now 50%. A lease extension was granted; the taxpayer’s contribution was £23,924. The flat was let (or available for letting) to tenants until October 2013 and was occupied as the taxpayer’s residence between October 2013 and February 2015.
The flat was sold in June 2015. The net sale proceeds of £914,685 were split equally between the taxpayer and her brother. The taxpayer’s tax return for 2015/16 disclosed a gain on the flat, subject to principal private residence (PPR) relief. The taxpayer later submitted amended CGT calculations, increasing her liability. However, the taxpayer subsequently claimed CGT overpayment relief as she believed she had understated her beneficial interest in the flat. HMRC rejected the taxpayer’s calculations.
On appeal, the First-tier Tribunal (FTT) accepted that the taxpayer’s beneficial ownership of the flat had increased to 50%. The taxpayer was also entitled to 21 months of PPR relief amounting to £33,349 and a deduction of £23,924 for the lease extension. The FTT found that the taxpayer’s total CGT liability was £59,046. She had paid £58,738 on account, and received an incorrect overpayment of £6,001, so £6,309 remained payable (plus interest).
Practical tip
If the legal and beneficial owners of property are not identical, or if beneficial entitlements change, contemporaneous documentary evidence should be retained in case of tax or other legal disputes.
