HMRC SDLT: SDLTM09815 – SDLT – higher rates for additional dwellings: interests treated as owned by an individual, trusts, children [including children subject to the Mental Health Acts]

SDLT Higher Rates for Additional Dwellings

This section of the HMRC internal manual provides guidance on the application of higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings. It covers various scenarios where interests are treated as owned by individuals, including trusts and children, even those under the Mental Health Acts.

• Explains the principles of SDLT higher rates.
• Discusses ownership interests in trusts.
• Includes provisions for children, including those under mental health care.
• Clarifies how these rules are applied by HMRC.

SDLT – Higher Rates for Additional Dwellings: Ownership and Trusts

This article explains how certain individuals may be considered to own an interest in a dwelling for the purposes of Self-Assessment Land Tax (SDLT) higher rates. This includes scenarios involving trusts and underage children.

Understanding Ownership for SDLT

When discussing SDLT, ownership of a dwelling can be more complex than just being the legal owner. An individual may be considered as owning a property in various situations, even if they do not hold the legal title. The important conditions and examples outlined below provide clarity on how this works.

1. Bare Trusts

A bare trust is one where an individual has complete beneficial ownership of a property, but the legal title is held by someone else. In this arrangement, the person with the beneficial interest is treated as the owner for SDLT purposes.

• Example: If Sarah is the beneficial owner of a house but has placed the legal title in her friend’s name as a nominee, Sarah will still be deemed to own the house for SDLT calculations.
• This rule also applies if the beneficiary is someone who cannot own property because they are underage or have a disability that limits their legal capacity to do so.

2. Trusts

When a dwelling is held in trust, individuals who receive certain rights may be considered as owners. If a person has the right to occupy a dwelling for their lifetime or has rights to the income generated by the dwelling, they are treated as owning that property.

• Example: If John has the right to live in a trust-owned property for his lifetime, he is treated as the owner of that dwelling, even though the legal owner is the trustee.
• This rule does not apply to situations where the trust gives the trustee discretion over income distribution among multiple beneficiaries.

3. Children as Beneficiaries of Trusts

When it comes to minor children, there are specific rules regarding their ownership interests:

• If a minor child is a beneficiary of a trust and would otherwise be considered an owner of a property, their parents are treated as the owners for SDLT purposes.
• Example: If Emma, a 10-year-old, is a beneficiary of a family trust that owns a property, her parents will be regarded as owning that property under SDLT rules.
• This same rule applies if the child owns property located outside of England, Wales, or Northern Ireland, provided they are under the age limit of 18 and such ownership is permissible.

4. Parents and Ownership Rights

In instances where minor children are beneficiaries of a trust, it is important to note the implications for their parents:

• The parents of a minor child are considered owners of the interest in any property held in trust for the child.
• This applies equally if the parents are not married to each other, as any spouses or civil partners of the parents are also taken into account.

5. Children with Mental Capacity Issues

For children who are under the influence of the Mental Capacity Act 2005 or the Mental Capacity Act (Northern Ireland) 2016, the rules changed after 22 November 2017:

• Prior to this date, when a trustee made a property purchase on behalf of such a child, it was treated as a purchase by the child’s parents. This meant that any other properties owned by the parents were considered when determining if the purchase was subject to higher rates.
• From 22 November 2017 onwards, purchases made on behalf of these children no longer affect the parents’ property status for SDLT purposes. The parents’ other properties are ignored.
• Example: If a trustee buys a house for a child under the Mental Capacity Act, the properties owned by the child’s parents wouldn’t count towards the SDLT higher rate, meaning they could benefit from lower charges on the new purchase.

6. Legal References

The information provided regarding ownership and higher rates is based on specific paragraphs in the Finance Act 2003:

• Sections regarding bare trusts are highlighted in Paragraph 3, Schedule 16 and Paragraph 11 (2) and (3), Schedule 4ZA.
• For trust ownership, refer to Paragraph 11 (1) and (3).
• Information concerning children as beneficiaries is detailed in Paragraph 12 and for cases outside of the UK, see Paragraph 17 (4).
• Lastly, for updated sections on mental capacity issues, see Paragraph 12 (1A).

These rules highlight how SDLT treats different ownership scenarios, especially in complex situations involving trusts and children. Understanding these regulations can be crucial for anyone navigating property transactions in the UK.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09815 – SDLT – higher rates for additional dwellings: interests treated as owned by an individual, trusts, children [including children subject to the Mental Health Acts]

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