SDLT and Trustees: A Reminder
SDLT can be overlooked in trust situations. For example, an SDLT charge may arise where an appointment of land is made from an estate and a beneficiary pays money because their entitlement is less than the value of the property they are to receive.
The SDLT legislation distinguishes between bare trusts and settlements (which are defined as trusts which are not bare trusts). Bare trusts are not covered in this article.
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When trustees of a settlement acquire land they are treated for SDLT purposes as purchasers of the whole of the interest acquired (including the beneficial interest). If there is chargeable consideration in excess of the SDLT threshold and none of the exemptions apply, SDLT will be payable. There is no charge to SDLT on a beneficiary with an interest in possession – the only charge is on the trustees.
An interest under a trust which gives the beneficiary an interest in the trust property will be a chargeable interest where the underlying property includes land. An interest in possession, an interest in some pre-March 2006 accumulation and maintenance trusts or a reversionary interest in a trust formed under English law (or an equivalent type of interest under a Scots or foreign trust) can therefore be chargeable interests. As a discretionary beneficiary does not have an interest in the assets of the trust under English law the interest of such a person is not a chargeable interest for SDLT purposes.
Consideration for exercise of power of appointment or discretion
Where a chargeable interest is acquired on the exercise of a power of appointment or of a discretion vested in the trustees of a settlement, any consideration given by the person in whose favour the appointment is made is treated as consideration for the acquisition of the chargeable interest.
HMRC have indicated (at SDLTM31760) that this provision does not apply to ‘normal’ trust transactions. In their view it is intended to deal with the case where a person pays so that that the power or discretion will be exercised in their favour.
Reallocation of trust property between beneficiaries
Where the trustees of a settlement reallocate trust property which consists of chargeable interests, the giving of consent by a beneficiary to the reallocation does not constitute chargeable consideration for the acquisition by him (paragraph 8 Schedule 16).
For a long time it was HMRC’s view that where trustees reallocated land between sub-funds (for example, swapping land within sub-fund A for land in sub-fund B), such transactions were land transactions in respect of which SDLT was chargeable. This view was eventually abandoned in the case where the trustees were not required to have the consent of the relevant beneficiaries.
The limitation in paragraph 8 is without prejudice to other provisions such as paragraph 7 Schedule 16 (consideration for exercise of power or discretion).
Assents and appropriations by personal representatives
The acquisition of property by a person in or towards satisfaction of his entitlement under or in relation to a Will or on intestacy is exempt from SDLT by reason of paragraph 3A Schedule 3 FA 2003 provided that the only consideration given by a beneficiary is the assumption of debt secured on the property immediately after the death (for example, a mortgage not paid off on death). Where the beneficiary gives any other form of consideration, then the transaction may be chargeable. In such a case, the chargeable consideration is determined without including any secured debt assumed.
Nil-rate band discretionary trusts
Under paragraph 8 Schedule 4 FA 2003 the assumption of a personal liability (eg. by signing an IOU) by a person to whom land is transferred is chargeable consideration for SDLT purposes. HMRC’s views of the effect of this provision in relation to the SDLT treatment of the commonest examples of planning using nil-rate band discretionary trusts are set out at SDLTM04045.
- Always think SDLT before agreeing to exercise powers in relation to trust land or land held in estates.
- Where equality money is paid by a beneficiary always consider whether SDLT may bite.
- Consider the SDLT consequences of IHT planning where the trust assets include land.
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