Declaration of Trust mistake made by solicitor 7 years ago?

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1. The trust determines the beneficial interest and it is the beneficial interest that determines the rental tax or CGT liability. If the beneficial interest was set at 99:1 and this was shared with HMRC, then HMRC will probably take this in good faith if they were to ever look into it (they probably wont if youve been prompt in submitting your SA and paying your tax). The only reason we register anything with the Land Register is to change from Joint Tenancy (which assumes 50% each) to a Tenancy-in-Common which can stipulate specific percentages such as 99:1 or even 100:0.

2. I dont think there is any stamp duty due when money is not exchanged.

3. As long as you submitted Form 17 at the time, then the rental income should be taxed according to the new beneficial ownership split whatever that is. I dont think HMRC will take a dim view of this if you were not at fault.

I am surprised that the new conveyancing firm did not pick up on the Land Registry issue. Surely if the 50:50 was in effect, then they would have notified you of the capital gains due on your 50%?

The only challenge from HMRC (if they investigate or if you notify them) may be that you were not provided with a completed SEV form (severs the joint tenancy) from Land Registry or via the legal firm, and therefore you should not have assumed the joint tenancy had been severed and replaced with a tenancy-in-common.

4. My guess is that it would only be worthwhile suing the legal firm in the event of HMRC investigating and landing a tax penalty (then you have a specific amount to claim for). But this may never happen, so I wouldnt worry about something that may never happen.

Disclaimer: not a legal or accounting expert!

I would suggest you might need to review also your Stamp Duty Land Tax declarations from time of purchase and when you varied ownership %s with DoTs. There is no legal requirement to register DoTs as far as I am aware, but if you have property in a bare trust in a way that alters beneficial ownership then SDLT declarations should have been submitted to HMRC at the time. The SDLT declarations would be documentary evidence to support your position without the LR register entry. SDLT declarations are to be submitted even if capital value too low to generate an SDLT charge.

Thanks for the replies. Very helpful. The new conveyancer was recommended by the estate agent dealing with the sale. I couldn't have made it clearer to them we had a declaration of trust in place, so I'm surprised they didn't query the ownership.

I've had a look at the SEV form you mention above. I was never made aware of this. The wording in the letter from the solicitor was that they would be dealing with the Land Registry to finalise things, and no more input was required from us. Perhaps I should have been more clued up.

Thanks for putting my mind at rest. I'm not sure whether to own up and write to HMRC now to get everything squared up - I hate the thought of looking over my shoulder for a number of years hoping not to get a letter. My understanding is that we have 3 years of becoming aware of the mistake made by the solicitor to make a claim.

In any case the old sols have accepted
Liability and you should not be out of pocket.

They will have indemnity insurance and should cover any investigation costs with hmrc if they don’t accept the amendments etc

Will take time to clear up but they’ve been good and accepted their mistake.

Reply to the comment left by Simon F at 23/12/2022 - 11:34
Thanks for bringing this up. The solicitor mentioned that no stamp duty was payable at the time on the transfer. I'll check with them that a SDLT declaration was made - my guess is they probably haven't done it.

Reply to the comment left by Gone Fishing at 23/12/2022 - 10:37
Isn't the whole point of this site that everyone benefits from the answers?

Reply to the comment left by M K at 23/12/2022 - 11:04
Stamp duty would be charged on the value of property changing beneficial ownership, not based on the sum of cash changing hands. But even if the 49% of the flat value falls below the threshold where stamp duty is charged, ie nil payable, an SDLT declaration should be sent to HMRC.

Reply to the comment left by Troubled landlord at 23/12/2022 - 11:43It sounds like the new conveyancing firm took your statement as fact and then didnt bother to look beyond the 99:1 beneficial ownership claim, but I still find it surprising that they didnt confirm this with the Land Registry at which point they would have discovered the 50:50 Joint Tenancy (and then apply the CGT to each of you at 50% ownership). I dont think they can claim reliance on your statement since its their job to check.
The SEV form would require signing by all parties under the Joint Tenancy before it can be submitted to change to Tenancy in Common. So clearly your other solicitor didnt even attempt to file the change.

You are not required to register a restriction at HM Land Registry. This is an additional form of protection usually entered into by persons who are not married.

Both your income tax and CGT should reflect the Declaration of Trust you entered into.

As the property was jointly owned it was correct to file Form 17 with HMRC. That is what confirms the tax treatment.

For CGT purposes you might have missed an opportunity. Cancelling or amending the DoT and informing HMRC that you are back to 50:50 ownership prior to selling the property would have opened up an opportunity for you both to utilize your annual CGT exemption allowances.

I don’t think you have any basis for making a claim against your solicitor. This is because you have not suffered any losses, save perhaps for paying them to do work they agreed to do which was not done.