Stamp Duty Land Tax (SDLT) is a tax charged on the consideration given for the sale of land in the UK. As it is only charged on transfers for consideration it is usually not applied to gifts or transfers to a trust. The exception to this is where the recipient takes the gift subject to an outstanding mortgage. The recipient of the gift is giving considering to the transferor by taking on the mortgage so SDLT is charged on the value of the mortgage outstanding.
When property held in trust is sold or purchased SDLT applies to the consideration in the usual way, but it’s important to establish who is considered the buyer or seller; the beneficiaries or the trustees? This is especially important when considering the 3% surcharge on purchasing additional residential properties.
When working out if the additional 3% charge applies to a transaction paragraph 11(3) of Schedule 4ZA, Finance Act 2003 provides that the following beneficiaries are treated as owning a major interest in a property that forms part of a trust, so are treated as the buyer or seller when it comes to land transactions:
- A beneficiary of a bare trust
- A beneficiary who is entitled to the income from the property
- A beneficiary who is entitled to a right to occupy the property for life
In these types of trust where the beneficiary is treated as the purchaser any other dwellings owned by the beneficiary are taken into account when working out if the 3% charge applies. Any properties owned personally by the trustees or held by them as a trustee of another settlement should be ignored.
It also follows then, that if the beneficiary of such a trust purchases their own property personally they will be treated as though they already owned a residential interest and therefore the additional charge would apply to their purchase. This also means that they would not be eligible for the relief for first time buyers introduced 22 November 2017 as they are treated as already having an interest in a residence for the purposes of SDLT.