Individuals may have various motivations, whether commendable or dubious, for placing assets they have acquired in the names of others. Nevertheless, a recent High Court ruling has underscored the inherent risks in such arrangements in the absence of adequate legal safeguards.
A homeowner with prior experience in refurbishing properties invested £230,000 in purchasing a plot of land located at the rear of his property. He shared an amicable relationship with a builder who had agreed to contribute his expertise and labour to develop this plot. The understanding was that any profits arising from this joint venture would be equally divided between the homeowner and the builder and his wife.
However, the plot was registered solely in the name of the builder’s spouse. The funds provided by the homeowner were categorised as a loan. These arrangements were made with the hope that the builder’s wife might be classified as a first-time buyer, thus potentially leading to a modest reduction in Stamp Duty Land Tax (SDLT). In reality, no such reduction was pursued, and the full SDLT amount was duly paid.
As relationships soured, the development project came to a halt. Subsequently, the homeowner initiated legal proceedings with the aim of transferring the plot into his name. The builder and his wife contested his claim, but a judge ultimately ruled in his favour, confirming him as the sole legal and beneficial owner of the plot.
In addressing the couple’s challenge to this verdict, the Court emphasised the inherent risks associated with such transactions. In the absence of a professionally drafted trust deed, the homeowner’s status as the beneficial owner remained unrecorded and unprotected. While there was no attempt to deceive HM Land Registry or evade paying approximately £2,000 in SDLT, any such endeavour would have constituted fraud.
The Court dismissed the appeal and affirmed the homeowner as the true purchaser of the plot. The monies he had provided were not a loan, despite their initial designation as such. Since he had covered the entire purchase price, the builder’s wife held legal title to the plot under a resulting trust for his benefit, thereby obliging her to transfer it to him at no cost.
This verdict aligned with the shared understanding of all parties involved in the transaction and the intended spirit of the joint venture. Any alternative outcome, the Court ruled, would be disproportionate and result in a manifest injustice against the homeowner.
Seatons can play a crucial role in ensuring that similar pitfalls and uncertainties are avoided in such transactions. With our expertise in drafting legally sound documents and providing guidance, individuals can safeguard their interests and investments while avoiding unnecessary legal disputes.