Le­gal v ben­e­fi­cial own­er­ship and bare trusts

EDP Norfolk - - LAST WORD IN PROPERTY -

The key dif­fer­ence be­tween le­gal and ben­e­fi­cial own­er­ship of prop­erty (or in­deed any as­set) is both age-old and highly top­i­cal cur­rently. In the con­text of real prop­erty (ie land and build­ings) le­gal own­er­ship usu­ally refers to the per­son whose name is reg­is­tered as the owner at the Land Registry.

Most of the time the le­gal owner is the same as the ben­e­fi­cial owner but not al­ways. Take the case of Mr and Mrs Jones who own 27 Eu­ca­lyp­tus Drive. Here the house and its ac­com­pa­ny­ing gar­den will be reg­is­tered in their names and will also be­long to them ben­e­fi­cially. Let’s take an ex­am­ple of an al­ter­na­tive sit­u­a­tion. An of­fice build­ing at XX Strand London, WC2, is owned by Su­pe­rior In­vest­ments Lim­ited, a com­pany reg­is­tered in Panama.

The com­pany is in turn ad­min­is­tered by shad­owy com­pany agents with a ‘brass plate’ ad­dress in St Peter Port, Guernsey. If you like, this is the op­po­site extreme of the sit­u­a­tion of Mr and Mrs Jones and it is likely that, if you were able to get a copy of the ac­counts of the Panama com­pany, that it would show no as­sets at all on the bal­ance sheet. How is this pos­si­ble?

The an­swer is that the prop­erty at XX Strand is owned by the Panama com­pany as a nom­i­nee or bare trustee for some­one else – for ex­am­ple a Rus­sian bil­lion­aire. In essence the sit­u­a­tion is the same as you would find in a portfolio of quoted shares through your lo­cal bank.

The share portfolio is reg­is­tered on the plc’s share reg­is­ter as be­ing owned by Bar­clays Bank Nom­i­nees Lim­ited (or some­thing sim­i­lar). But Bar­clays Bank Nom­i­nees Lim­ited are not the true owner of the shares – it’s you!

So you re­ceive div­i­dends on the shares, which are paid to you di­rectly rather than be­ing paid to the nom­i­nee com­pany, and you have the ab­so­lute right at any time to or­der the nom­i­nee

com­pany to sell the shares or trans­fer them to some­one else.

Some con­fu­sion ex­ists re­gard­ing bare trusts and dis­cre­tionary trusts. In a bare trust the bare trustee has no dis­cre­tion what­so­ever and this is cru­cially im­por­tant for tax pur­poses.

The tax rules recog­nise very clearly the ex­is­tence of bare trusts and in­deed the Cap­i­tal Gains Tax (CGT) rules define what a bare trust is. In­cluded in this def­i­ni­tion is the phrase that an­other per­son is ‘ ab­so­lutely en­ti­tled to direct how [the as­set] shall be dealt with.’ Fur­ther­more, the CGT rules ex­plic­itly state that any trans­ac­tions in the as­set are ef­fec­tively treated as be­ing made by the ben­e­fi­cial owner rather than the bare trustee.

One im­por­tant rea­son for set­ting up a bare trust ar­range­ment is that true own­er­ship is in­vis­i­ble. This in­vis­i­bil­ity is no doubt now com­pro­mised un­der reg­u­la­tions that re­quire the dis­clo­sure of the true ben­e­fi­cial owner in cer­tain cir­cum­stances; how­ever these tend to ap­ply to own­er­ship of shares rather than prop­erty.

So if, for some rea­son, you don’t want some­one else to know you own a prop­erty, a bare trust could be the an­swer! As al­ways though, it is best to seek le­gal ad­vice from a suit­ably-qual­i­fied lawyer be­fore pro­ceed­ing.

This col­umn is spon­sored by Norwich Ac­coun­tancy Ser­vices Ltd. Jon Hook can be con­tacted at Norwich Ac­coun­tancy Ser­vices on 01603 630882 email [email protected]­wichac­coun­tan­cy­ser­vices.co.uk nor­wichac­coun­tan­cy­ser­vices.co.uk

ABOVE: A bare trust could be use­ful to you - but get proper le­gal ad­vice

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