HMRC SDLT: SDLTM31710 – Application – Trusts and powers: Bare trusts

Principles and Concepts of Bare Trusts

This section of the HMRC internal manual provides guidance on the application of trusts and powers, specifically focusing on bare trusts. It outlines key principles and concepts related to bare trusts, which are essential for understanding their legal and tax implications.

  • Definition and characteristics of bare trusts.
  • Legal responsibilities of trustees.
  • Tax obligations for beneficiaries.
  • Application of powers within bare trusts.
  • Relevant HMRC policies and procedures.

SDLTM31710 – Application – Trusts and Powers: Bare Trusts

Understanding Bare Trusts

A bare trust is a type of trust commonly found in England, Wales, and Northern Ireland. In Scotland, this type of trust is known as a simple trust. In a bare trust, each beneficiary has full entitlement to the trust property. This means they have complete rights over the property against the trustees.

What Does ‘Absolutely Entitled’ Mean?

The term ‘absolutely entitled’ is explained in detail in the Capital Gains Manual. Here is a straightforward explanation:

Immediate Access: The beneficiary can gain access to the trust property whenever they want, or they can request the trustees to release the property, following the procedures laid out in the trust agreement.

Limited Power of Trustees: The trustees cannot make decisions about the trust property or deal with it in any way without the beneficiary’s consent. The beneficiary’s rights take precedence.

Trustees and Beneficiaries

In certain situations, trustees may be obligated to pay necessary expenses or costs associated with managing the trust. However, this does not affect the fact that the beneficiary is still absolutely entitled to the trust property. For example:

– If the trustees have to pay some bills for maintenance or taxes related to the trust property, they must still make the trust property available to the beneficiary. They cannot withhold it just because they have expenses to cover.

Multiple Beneficiaries

It is possible for more than one person to be absolutely entitled to the trust property. Each beneficiary will have the same rights associated with the property. Here are key points regarding multiple beneficiaries:

– Every beneficiary must hold the same entitlement to the property as described earlier, meaning they all have equal rights to access or claim the property.

Stamp Duty Land Tax (SDLT) and Bare Trusts

When a person holds property as a bare trustee, the implications for Stamp Duty Land Tax (SDLT) must be considered. SDLT applies as if the property already belonged to the individual or individuals for whom the trustee is acting. Essentially, anything the trustee does regarding the property reflects the actions of those who are truly entitled to it.

Example of SDLT Application

For a practical illustration, refer to the case detailed in SDLTM31710a, which outlines how SDLT is applied when someone acquires a chargeable interest through a bare trust arrangement.

Key Takeaways

– In a bare trust, each beneficiary has total rights over the trust property.
– ‘Absolutely entitled’ means beneficiaries can access or request their trust property at any time, and trustees have no authority over it without the beneficiary’s agreement.
– Even when expenses exist, the beneficiary’s rights to the property remain unchanged.
– Multiple beneficiaries can have equal rights over the trust property.
– SDLT is charged as if the property belonged to the beneficiaries, even though it is held by trustees.

For further information on SDLT and its implications in trusts, check the detailed guidance at SDLTM0000.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM31710 – Application – Trusts and powers: Bare trusts

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