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Tax

Beneficial interest

Transfer for tax purposes

CR v MZ
[2013] EWHC 295

Summary

The court was asked to determine the beneficial ownership of a property owned by a divorcing couple. The High Court held on a preliminary issue that the beneficial interest in a family home remained vested in the husband and wife. The husband and his father had defended the wife’s claim to a share of the family home on the grounds that the home was owned by the father or by the husband’s company.

More detail

The judge rejected the defence that the father owned the property. He then moved on to consider whether the beneficial ownership vested in the husband or his company. He pointed out that there were a number of conflicting decisions dealing with transfers for tax purposes and said:
    “I have been referred to Sekhon v Alissa [1989] 2 FLR 94, and the case of Lavelle v Lavelle [2004] 2 FCR 418, both cases where members of the family had transferred property to another family member for tax reasons, but it was found that the beneficial ownership remained with the money provider. Neither were referred to or cited in Ben Hashem v Ali Shayif [2009] 1 FLR 115, an important decision of Munby J … who held that the properties were beneficially as well as legally held in a company, because otherwise the purpose of the tax saving scheme would fail. In Prest v Prest [2011] EWHC 2956 (Fam), Moylan J’s finding that a property remained beneficially owned by the husband despite its transfer to a third party name, survived intact an attempt to appeal that finding. I have to say I struggle to reconcile these authorities. It may be that each is fact specific.”
He then went on to analyse the reasoning behind the conflicting decisions. He said:
    “In this case, I draw particular attention to:
      (i) The absence of any clear tax advantage in the scheme. The rationale of the decision in Ben Hashem is not established in this case.
      (ii) The personal liabilities taken out by the husband and the wife in respect of the mortgage in 2009, when the legal interest was transferred.
      (iii) The money that they put in by way of loan from [the wife’s brother].
      (iv) The absence of any consideration for any transfer of the beneficial interest.
      (v) My finding that the property was initially going to be bought in the names of the husband of [sic] the wife, and the husband’s assertions to the wife that it would make no difference whether it was in their name or in a company name.
      (vi) The absence of any genuine third party involvement.
In all the circumstances, therefore, I find that the beneficial interest did not pass to [the company].”

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