HMRC SDLT: Understanding SDLT Higher Rate Charges for Trusts and Non-Natural Persons

Stamp Duty Land Tax (SDLT) and Higher Rate Charges for Trustees

This document explains when the higher rate of Stamp Duty Land Tax (SDLT) applies to residential property acquisitions by non-natural persons, specifically focusing on trusts and trustees. It outlines scenarios where the higher rate does not apply and provides examples to illustrate these situations.

• Companies acting as trustees of a settlement are not subject to the higher rate SDLT.
• A ‘settlement’ is defined as a trust other than a bare trust.
• For acquisitions by a nominee or bare trustee, SDLT is applied as if the interest is held by the person for whom the trustee acts.
• If a company, as a trustee of a settlement, buys a dwelling, the standard SDLT rates apply, not the higher rate.
• When a bare trustee buys a dwelling for an individual, the purchase is treated as if the individual made it, affecting SDLT rates.
• Purchases by individuals as bare trustees for companies are subject to the higher rate SDLT.

“`

Understanding the Higher Rate Charge for Stamp Duty Land Tax (SDLT)

This article explains when the higher rate of Stamp Duty Land Tax (SDLT) is charged when certain non-natural persons acquire residential properties. It includes important points about trusts and provides examples to clarify how these rules apply.

Higher Rate Charge Overview

• The higher rate of SDLT is typically charged at 15% for acquisitions of residential properties.
• This higher rate applies to non-natural persons which include companies, partnerships, and corporate bodies purchasing residential property.
• However, certain exemptions exist, especially when the purchaser acts as a trustee or in a similar capacity.

Trusts and the Higher Rate Charge

When a company acts as a trustee for a settlement, it is exempt from the higher rate SDLT charge. This applies regardless of whether the company is a ‘corporate trustee’ managing various settlements or a trustee for just one settlement.

A ‘settlement’ is defined under the Finance Act 2003 (FA03/SCH16/PARA1) as any trust that is not a bare trust. Important distinctions are made when it comes to different types of trustees:

• If a company acquires property as a corporate trustee, the higher rate charge does not apply.
• If a nominee or bare trustee makes an acquisition, SDLT will be calculated as though the interest belongs to those they are serving, with certain exceptions.

Examples of SDLT Calculations

Here are a few examples to illustrate how the rules apply:

Example 1: Corporate Trustee

• A company operates as a corporate trustee and purchases a housing interest valued at £2.5 million.
• The higher rate SDLT charge of 15% does not apply in this situation.
• Instead, the company will pay SDLT based on standard rates applicable to the transaction.

Example 2: Bare Trustee for an Individual

• A company acts as a bare trustee for an individual and buys a residential property worth £1.5 million.
• In this case, the 15% higher rate SDLT charge is not applied since the bare trustee status allows the individual to be deemed the purchaser.
• Whether the SDLT is calculated based on standard rates or higher rates depends on if the individual has ownership of any other properties.

Example 3: Bare Trustee for a Company

• An individual operates as a bare trustee for a company purchasing a residential property that costs £2.5 million.
• The higher rate charge will apply because, in this situation, the bare trustee structure is disregarded, and the company is identified as the purchaser.
• The 15% higher rate SDLT charge is applicable here.

Understanding Key Concepts

Here are some key concepts to bear in mind when dealing with SDLT and higher rate charges:

• Non-natural persons: These are entities like companies and partnerships that do not operate like individual people. They are subject to different tax rules compared to private individuals.
• Trustee Types: The type of trustee (corporate vs. bare) significantly impacts the SDLT charge. Corporate trustees are exempt from the higher rates, while bare trustees may or may not be, depending on the circumstances.
• Chargeable Interest: This refers to the interest in a property that is subject to SDLT, including both freeholds and leaseholds.
• Standard Rates: SDLT is calculated based on the standard rates for individuals unless the higher rate applies due to the circumstances outlined in the act.

Recap of Relevant Legislation

The guidelines for this higher rate charge and exemptions can be found in various parts of legislation, including:

• FA03/S55/SCH4A, which details the scope of the SDLT charge.
• FA03/SCH4A/PARA3(4), outlining how trusts operate concerning higher rate charges.
• FA03/SCH16/PARA1, providing the definition of a settlement.
• FA03/SCH16/PARA3, which explains the application of SDLT when a nominee or bare trustee is involved.

Final Notes

It’s important for purchasers to be aware of these rules when acquiring residential properties, especially in trust-based arrangements. Understanding your status in relation to SDLT will facilitate better planning and compliance with tax obligations.

For further information and guidance, individuals and companies are encouraged to refer to official resources or consult with tax professionals who specialise in property transactions and SDLT regulations.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Understanding SDLT Higher Rate Charges for Trusts and Non-Natural Persons

View all HMRC SDLT Guidance Pages Here