Understanding Stamp Duty Land Tax on Nil-Rate Band Discretionary Trusts and Land Transfers

SDLT on Will Transfers Involving Nil-Rate Band Discretionary Trusts

A transfer of land under a will is not always free from SDLT. The key issue is whether the person receiving the property gives chargeable consideration, such as a promise to pay a pecuniary legacy, taking on liability for it, or granting security over the land. This risk often arises where a nil-rate band discretionary trust is created by will and the cash legacy is not simply paid in cash.

• If the pecuniary legacy is paid to the discretionary trustees in cash, there is usually no SDLT issue.
• SDLT may arise if the surviving spouse or civil partner receives land and, in return, promises to pay the legacy, assumes liability for it, or grants a charge over the property.
• HMRC treats these promises, liabilities, and charges as chargeable consideration, which can make the land transfer taxable.
• If the personal representatives have already created a charge over the property, and the transferee takes the land subject to that existing charge without any new personal liability or change in rights, HMRC says there may be no chargeable consideration.
• Deeds of variation can also affect SDLT because they may alter beneficial interests in land, although a statutory exemption may apply if the legal conditions are met.
• The SDLT result depends on the legal and practical substance of the arrangement, so small drafting changes can affect whether tax is due.

Scroll down for the full analysis.

SDLT and nil-rate band discretionary trusts: when a transfer under a will can become chargeable

This page explains a point that often surprises families and conveyancers dealing with estates. A transfer of land under a will is not always free from SDLT. In particular, where a nil-rate band discretionary trust is used and a pecuniary legacy is satisfied by arrangements involving land, the person receiving the land may be giving chargeable consideration. That is what creates the SDLT issue.

What this rule is about

A nil-rate band discretionary trust is commonly created by will. A typical arrangement leaves a fixed cash sum, usually up to the inheritance tax nil-rate band, to trustees to hold on discretionary trusts for a class of beneficiaries. The rest of the estate often passes to the surviving spouse or civil partner.

If the executors simply pay the cash sum to the trustees in money, the HMRC material says there is no SDLT issue. The difficulty arises when that fixed cash legacy is dealt with in some other way and land is transferred as part of the overall arrangement.

For SDLT, a transfer of land is still a land transaction even if it happens in the course of administering an estate and even if it reflects entitlements under a will. The key question is not whether the transfer comes from a will. The key question is whether the person receiving the land gives chargeable consideration for it.

What the official source says

The official HMRC guidance makes these main points.

First, a beneficiary often gives no chargeable consideration when land is transferred under a will. In those ordinary cases, SDLT does not arise because there is no chargeable consideration.

Second, arrangements involving nil-rate band discretionary trusts can be different. HMRC gives several common examples where the fixed cash legacy is not paid in cash and the transfer of land is linked to a promise, liability, or charge. In those cases, SDLT may arise because the recipient of the land is giving something of money value.

The examples given by HMRC are these:

• If the trustees of the nil-rate band discretionary trust accept the surviving spouse’s or civil partner’s promise to pay the pecuniary legacy, and land is transferred to that spouse or civil partner in return for that promise, the promise to pay is chargeable consideration.
• If the trustees accept the personal representatives’ promise to pay the pecuniary legacy, and land is transferred to the surviving spouse or civil partner in return for that spouse or civil partner taking on liability for the promise, that assumption of liability is chargeable consideration. HMRC says the amount of chargeable consideration is the amount promised, capped at the market value of the land transferred.
• If land is transferred to the surviving spouse or civil partner and that person grants a charge over the property to secure payment of the pecuniary legacy, and the trustees accept that charge in satisfaction of the legacy, the charge is money’s worth and is therefore chargeable consideration.
• If the personal representatives themselves charge the land with payment of the pecuniary legacy, and it is also agreed that the trustees cannot enforce payment personally against whoever owns the land from time to time, and the trustees accept that charge in satisfaction of the legacy, then a later transfer of the property to the surviving spouse or civil partner subject to that charge does not involve chargeable consideration, provided there is no change in anyone’s rights or liabilities in relation to the secured debt.

The guidance also notes that a deed of variation can itself alter beneficial interests in land and so may involve a land transaction. But placing a charge on land is not, by itself, a land transaction. HMRC also points out that there is a specific exemption in Schedule 3 paragraph 4 Finance Act 2003 for certain land transactions effected by deed of variation, if the statutory conditions are met.

What this means in practice

The practical point is that SDLT risk often turns on how the pecuniary legacy is actually satisfied.

If the estate simply pays the cash legacy to the discretionary trustees, and land passes separately under the will, there is usually no SDLT issue on that point.

But if the parties restructure matters so that the spouse or civil partner receives land and, in substance, gives a promise to pay the trust legacy, takes on liability for paying it, or grants security over the property for it, HMRC treats that as chargeable consideration.

In other words, SDLT is not avoided just because the arrangement sits within estate administration. If the recipient of the land gives something of value in return, the transfer can become chargeable.

The last HMRC example shows an important contrast. If the land is already subject to a charge created by the personal representatives, and the transferee does not take on any new personal liability and no one’s rights or obligations change, HMRC accepts that there is no chargeable consideration on the transfer merely because the land is transferred subject to that existing charge.

How to analyse it

A sensible way to analyse these cases is to ask the following questions.

• What exactly does the will provide? Is there a fixed pecuniary legacy to discretionary trustees, and who is entitled to the residue?
• How is that pecuniary legacy being satisfied in fact? Is it being paid in cash, or dealt with by promise, assumption of liability, or security over land?
• Is there a transfer of land? If so, who receives it, and what do they give in return?
• Has the recipient of the land promised to pay the legacy, accepted liability for someone else’s promise, or granted a charge over the property?
• If the land is transferred subject to a charge, was that charge already created by the personal representatives, and do the trustees have only recourse to the land rather than personal recourse against the owner?
• Does the transfer change anyone’s rights or liabilities in relation to the debt secured on the property? HMRC’s no-consideration treatment in the final example depends on there being no such change.
• Is a deed of variation involved? If so, does it alter beneficial interests in land, and could the statutory exemption for certain deeds of variation apply?

These questions matter because SDLT depends on the legal and economic substance of the arrangement, not just the label attached to it in probate or trust documents.

Example

Illustration: a will leaves a fixed pecuniary legacy to nil-rate band discretionary trustees, with the matrimonial home passing to the surviving spouse as part of the residue. Instead of paying the trustees that cash sum from other estate assets, the parties agree that the spouse will receive the home and personally promise to pay the amount of the pecuniary legacy to the trustees. On HMRC’s approach, that promise is chargeable consideration for the transfer of the home.

By contrast, if the personal representatives create a charge over the home to secure the pecuniary legacy, the trustees accept that charge in satisfaction of the legacy, the trustees have no personal claim against the owner, and the home is then transferred subject to that existing arrangement without changing anyone’s rights or liabilities, HMRC says there is no chargeable consideration on the transfer.

Why this can be difficult in practice

These cases are fact-sensitive because small drafting differences can change the SDLT result.

The difficult issue is often whether the recipient of the land has actually given something in return for the transfer. A personal promise to pay, an assumption of liability, and a charge granted by the recipient all point towards chargeable consideration. But a transfer subject to an existing charge may not do so if the transferee does not become personally liable and the secured debt arrangements do not otherwise change.

It is also important not to blur together different legal questions. HMRC’s page deals only with SDLT. It does not decide whether trustees or personal representatives are acting within their powers, whether they have complied with fiduciary duties, or what the inheritance tax consequences may be.

Deeds of variation add another layer. They can affect beneficial interests in land and so potentially create a land transaction, but there may also be a statutory exemption. Whether that exemption applies depends on the conditions in the legislation, not just on the fact that the document is called a deed of variation.

Key takeaways

• A transfer of land under a will can still be a land transaction for SDLT purposes.
• The main SDLT question is whether the person receiving the land gives chargeable consideration, such as a promise to pay, an assumed liability, or a charge over the property.
• Where land is transferred subject to an existing charge created by the personal representatives, there may be no chargeable consideration if no one’s rights or liabilities change.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding Stamp Duty Land Tax on Nil-Rate Band Discretionary Trusts and Land Transfers

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