Understanding FA03/SCH16/PARA7: Consideration in Trusts and Power of

SDLT on trust appointments where a beneficiary pays for the appointment

A special SDLT rule can apply when property is appointed out of a trust because trustees use a power of appointment or other discretion, and the person receiving the property gives money or other value to secure that result. In those cases, what the beneficiary gives can count as chargeable consideration for SDLT. HMRC says this rule is aimed at unusual cases and does not normally apply to ordinary trust appointments made without payment.

• The rule applies where a chargeable interest is acquired through the exercise of a power of appointment or a trustee discretion under a settlement.
• If the person who receives the property gives consideration for the appointment being made in their favour, that consideration may be treated as SDLT consideration.
• It is not a general rule for all trust appointments; HMRC says normal trust transactions without payment are not the target.
• The key issue is whether the beneficiary gave value to obtain the property, not simply whether trustees exercised a power.
• Relevant evidence can include the trust deed, trustee resolutions, correspondence, side agreements, and how funds or other value moved.
• Cases can be difficult where payments are indirect, informal, poorly documented, or said to be for another reason.

Scroll down for the full analysis.

SDLT and trusts: when payment for the exercise of a power or discretion counts as consideration

This page explains a narrow SDLT rule that can apply where someone acquires property from a trust because trustees exercise a power of appointment or another discretion in that person’s favour, and that person gives something in return. The point matters because SDLT looks at chargeable consideration. In this specific situation, a payment made to secure the appointment can be treated as consideration for the land transaction.

What this rule is about

Some trust arrangements allow trustees, or another person with the relevant authority, to decide who should receive trust property. That decision may be made under a power of appointment or under a discretion in the settlement.

The SDLT issue is whether anything given by the person who benefits from that decision should be treated as consideration for acquiring the chargeable interest. If it is, that amount may bring the transaction within charge or affect the amount of SDLT due.

This rule is aimed at a particular type of case. It is not a general rule that all trust appointments involve consideration. It targets the situation where the beneficiary effectively pays to have the power or discretion exercised in their favour.

What the official source says

The official HMRC material refers to paragraph 7 of Schedule 16 to Finance Act 2003. It applies where a chargeable interest is acquired because of:

• the exercise of a power of appointment, or
• the exercise of a discretion vested in trustees of a settlement.

Where the rule applies, any consideration given by the person in whose favour the power or discretion is exercised is treated as consideration for the acquisition.

HMRC also makes two important points about scope:

• the provision does not apply to normal trust transactions, and
• it is intended for the unusual case where a person pays trustees, or someone else, so that the power or discretion is exercised in their favour.

What this means in practice

The practical effect is that SDLT cannot be avoided simply because the land passes under a trust mechanism rather than under an ordinary sale contract. If a person gives money or other consideration in order to receive the property through the exercise of a power or discretion, that payment can be treated as the consideration for the acquisition.

The key practical question is not just whether trustees exercised a power. It is whether the person who received the property gave consideration for that outcome.

If there is no such payment or other consideration, this rule is unlikely to matter. That is why HMRC says it has no application to normal trust transactions. Many appointments out of trust are made without the beneficiary giving anything in return. On the source material, those ordinary cases are not the target of this provision.

If, however, there is an arrangement under which the recipient pays trustees or another person so that the appointment is made in their favour, the payment may be treated as consideration for SDLT purposes.

How to analyse it

A sensible way to approach the issue is to ask the following questions.

• Has a chargeable interest been acquired?
• Was the acquisition brought about by the exercise of a power of appointment or a trustee discretion under a settlement?
• Did the person who received the benefit give any consideration?
• Was that consideration given in connection with the power or discretion being exercised in that person’s favour?
• Who received the payment or value given? HMRC’s wording indicates it may be trustees or someone else.

The last point matters because the rule is concerned with the substance of the arrangement. On the HMRC wording supplied, it is not limited to a direct payment to the trustees themselves.

In practice, relevant evidence may include the trust instrument, minutes or resolutions, correspondence, side agreements, and the flow of funds. The real issue is whether the recipient of the property gave value to secure the appointment.

Example

Illustration: a settlement gives trustees power to appoint a property to one of several potential beneficiaries. One beneficiary agrees to pay a sum so that the trustees appoint the property to them. If the appointment is then made in that beneficiary’s favour, the amount given by that beneficiary may be treated as consideration for the acquisition under this rule.

By contrast, if trustees simply decide, without any payment or bargain from the beneficiary, to appoint the property to that beneficiary under the trust terms, the HMRC material indicates this provision is not aimed at that normal trust transaction.

Why this can be difficult in practice

The difficult part is usually not identifying the legal power. It is deciding whether what was given by the beneficiary is truly consideration for the acquisition.

That can be fact-sensitive where:

• payments are informal or not well documented,
• value is given indirectly rather than by a simple cash payment,
• the payment is said to be for another purpose, or
• several steps are involved and it is unclear whether the appointment and the payment are connected.

The HMRC text is brief and high level. It states the intended target of the rule, but it does not set out detailed boundaries for every possible trust arrangement. That means careful attention is needed where the facts are unusual or where there is an argument that a payment was not made in return for the appointment itself.

Key takeaways

• This is a specific SDLT rule for acquisitions through a power of appointment or trustee discretion where the recipient gives consideration.
• HMRC says it is not meant for ordinary trust appointments made without payment by the beneficiary.
• The main practical issue is whether the beneficiary gave value to secure the property being appointed to them.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding FA03/SCH16/PARA7: Consideration in Trusts and Power of

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