The First-tier Tribunal (FTT) has decided on a case where a parent helped their daughter to get onto the property ladder and was charged the higher rates of residential land transaction tax (LTT) as the parent already owned another residential property with her husband. The mother had agreed to part purchase the property with her daughter and become a joint borrower and joint owner while her daughter couldn’t pass the necessary mortgage affordability tests. Once the daughter was able to pass the tests the mother came off the property deeds and stopped being a joint borrower. The mother contended that she had no beneficial ownership interest in the home purchased by her and her daughter, though no documentation was prepared to show detail this. The mother had never lived in the property.
The FTT held that the legislation was clear and that the Welsh Revenue Authority had acted lawfully and that the higher rates applied to the facts of the case at hand. The taxpayer had contended that if the transaction had been structured differently, such as the mother being a loan guarantor or joint borrower where the daughter was sole proprietor then the higher rates of LTT wouldn’t have applied. Similarly, if the transaction had taken place in England the higher rates of Stamp Duty Land Tax, the LTT equivalent, wouldn’t have applied as the mother was a joint owner for a short period of time, around two years.
The FTT confirmed that they “do not have the power to consider whether the policy for LTT higher rates transactions is fair or morally right”. The taxpayer was not eligible for a refund.
The decision can be found at: The Finance & Tax Tribunal (tribunals.gov.uk)
This is a tough decision for the family concerned as the desire for a parent to help children is a natural emotion for many people and both sides agreed the relevant statue was unambiguous. The FTT could only decide the case on the legislation passed by the Welsh Senedd. This case highlights how considering tax matters in advance of large transaction is sensible. Discussions with the mortgage provider in this case may have led to substantial tax savings being made as the transactions could have been structured and documented in a tax efficient manner thereby reducing the LTT to zero. Please do contact us if you are considered a large transaction as Stamp Duty Land Tax (in England) and Land Transaction Tax (in Wales) are subject areas that we are experienced with.
