HMRC SDLT: SDLTM09940 – SDLT – increased rates for non-resident transactions: Bare trusts acquiring new lease; and purchases by settlements where a beneficiary entitled to occupy, or to income from, dwelling – paras 13 and 14 Sch 9A FA03

SDLT Increased Rates for Non-Resident Transactions

This section of the HMRC internal manual explains the principles and concepts related to increased Stamp Duty Land Tax (SDLT) rates for non-resident transactions. It focuses on bare trusts acquiring new leases and purchases by settlements where a beneficiary is entitled to occupy or receive income from a dwelling.

• Explains SDLT increased rates for non-resident transactions.
• Covers bare trusts acquiring new leases.
• Discusses purchases by settlements with beneficiary entitlements.
• Refers to paragraphs 13 and 14 of Schedule 9A FA03.

SDLT – Increased Rates for Non-Resident Transactions: Bare Trusts and Settlements

Understanding SDLT and Trusts

Stamp Duty Land Tax (SDLT) applies to property transactions in the UK. When properties are purchased under a trust, the SDLT rules can vary based on the type of trust involved. This article outlines how SDLT applies to bare trusts and settlements, particularly regarding the increased rates that may apply to non-resident transactions.

For more general guidance on how trusts are treated under SDLT, refer to SDLTM31400 and SDLTM31700 onwards.

Bare Trusts and Lease Transactions

A bare trust is a type of trust where the beneficiaries have full rights to the property against the trustees. This means that if a beneficiary is of legal age and not disabled, they are completely entitled to the property held in the trust.

When a Bare Trustee Acquires a Lease

– Generally, when a bare trustee acquires property, SDLT is calculated as if the property belongs directly to the beneficiaries.
– However, when a bare trustee is granted a lease, they are treated as the purchaser of the entire interest of that lease. This is specified in paragraph 3(3) of Schedule 16 of the Finance Act 2003.

Chargeable Person for SDLT Purposes

– When a bare trust acquires a lease, the trustee is responsible for paying SDLT.

Determining Non-Resident Transactions

– For the increased SDLT rates that apply to non-resident transactions, the key points to consider are:
* The transaction involves the granting of a lease on a dwelling.
* One of the purchasers is acting as a trustee of a bare trust.
* The property acquisition falls under the stipulations of paragraph 3(3) of Schedule 16.

In this case, you need to look at the residence status of the beneficiary or beneficiaries, not the trustee.

Example of a Bare Trust Transaction

Let’s take a practical example:

– Vincent and Josephine are the trustees of the Regent Trust, which is a bare trust, and Davina is the sole beneficiary.
– They use trust funds to buy a 25-year lease for a residential property in Northern Ireland on 1 May 2027 for £60,000.
– Since they are granting a lease, the rules in paragraph 3(3) apply, and to determine whether this is a non-resident transaction, you check Davina’s residence status, as she is the beneficiary.

Creating a Settlement and Its Impact on SDLT

A settlement generally refers to any trust arrangement that is not a bare trust. There are different types of trusts, including:

– Life Interest Trusts: Where a beneficiary can live in a property for life.
– Interest in Possession Trusts: Where a beneficiary has the right to the income generated from a property.

Trustees of Settlements and SDLT

When a property is acquired through a settlement:

– SDLT applies as though the property belongs directly to the beneficiaries.
– While the trustee manages the trust, they are still responsible for making the SDLT return and paying any tax due.

Eligibility for Non-Resident Transactions Surcharge

For a property purchase involving a settlement, if the purchaser includes a trustee of a life interest or an interest in possession trust:

– The residence status of the beneficiaries, not the trustee, determines whether the extra charges for non-residents apply.

Example of a Settlement Transaction

Consider the following scenario:

– Sofya is a trustee of the Voronova Family Trust, which is not a bare trust. Morgan is the sole beneficiary.
– Sofya decides to use trust funds to buy a freehold residential property in England for £400,000 on 1 August 2023.
– Since Morgan is entitled to any income earned from the property, you would assess Morgan’s residence status to figure out if the transaction is subject to the non-resident surcharge.
– Sofya remains the chargeable person for SDLT and is responsible for the financial return.

Exceptions in the Tax Treatment of Trusts

It is important to understand that there are boundaries in how trusts are treated under SDLT regulations.

– Specifically, settlements set up under a unit trust scheme are excluded from the rules mentioned above. According to paragraph 14(3), these schemes are treated like a company for tax purposes.
– The rights of unit holders are considered shares in the company, meaning extra guidelines apply regarding the residence status of unit trust scheme trustees.

You can refer to SDLTM09890 for further details on how the residence of trustees is determined for such transactions.

Key Principles to Remember

When dealing with trust-related property transactions, remember the following points:

– The type of trust (bare or settled) greatly influences SDLT consequences and responsibilities.
– The residence status of beneficiaries plays a crucial role in determining if increased rates apply to non-resident transactions.
– Trustees of bare trusts are responsible for SDLT when they acquire a lease, but the beneficiaries’ residence status dictates how transactions are classified.

Being aware of these factors can help ensure compliance with SDLT requirements when purchasing properties through trusts. It’s advisable to consult further guidance or seek professional advice if you are unsure about any aspects of SDLT as it relates to trusts.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09940 – SDLT – increased rates for non-resident transactions: Bare trusts acquiring new lease; and purchases by settlements where a beneficiary entitled to occupy, or to income from, dwelling – paras 13 and 14 Sch 9A FA03

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