If using a Trust, you need to be aware of the Housing Benefit rules which can catch you out.
If the tenant is also a beneficiary of the Trust then Housing Benefit is denied (Regulation 9 (1) (e)). This is not the case if the claimant ‘satisfies the appropriate authority that the liability was not intended to be a means of taking advantage of the Housing Benefit scheme’ (Regulation 9 (3)). This is difficult as the onus is on you to prove a negative to the Local Authority that probably wants to deny the claim.
There is case law around this regulation and not all of it is favourable to what you want to achieve. I have a HB claim on behalf of my son (who is a tenant and beneficiary of a family trust) that was refused (within 24 hours) and again on reconsideration even though he has been in receipt of HB for 17 years in other properties not connected to the family or our discretionary trust. I am taking the case to a Tribunal but, as I say, not all the case law is favourable. (I am told the waiting list for the hearing in my area is 49 weeks so I can’t tell you yet how my arguments are received.)
The other regulation you will have to watch is 9 (1) (a) which denies HB if the tenancy or other agreement is not on a commercial basis. In my experience Local Authorities will argue that the same terms and conditions wouldn’t be offered to any other tenant and that you (as relatives and trustees) wouldn’t evict the tenant. There are some arguments against these points in the case law but I don’t know yet how persuasive they will be.
You will want advice on the stamp duty implications of the purchase. The purchase of a property by a Trust falls within the definitions which trigger the additional 3% stamp duty land tax. I believe that this is not the case if the beneficiary is granted a life interest in the property. In that case, I believe also that if and when the property is subsequently sold Principal Private Residence relief from Capital Gains Tax is available to the Trust.
Of course, structuring the purchase in a tax efficient manner may have a bearing on how the overall arrangement is viewed by the Local Authority for the purposes of the above HB Regulations.
I would take up John Verge’s offer to discuss, which was recently posted.
Best wishes
David
