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HMRC SDLT: SDLTM29861 – Definition of a first-time buyer – Previous acquisition by a Settlement

Understanding the Definition of a First-Time Buyer in Relation to Previous Acquisitions by a Settlement

When considering stamp duty relief for first-time buyers, it’s important to understand how previous property acquisitions through a settlement can affect eligibility for this relief. This guidance explains the key principles, concepts, and scenarios involved.

What is a Settlement?

A settlement is essentially a trust arrangement where assets, such as property, are held for the benefit of specific individuals, known as beneficiaries. For further details on what constitutes a settlement, see SDLTM31720.

Key Principles of Stamp Duty Relief

Stamp duty relief for first-time buyers is not denied due to previous acquisitions made as a trustee of a settlement if the buyer was also a beneficiary of that settlement. However, there are conditions that may affect this. In cases where the property in the settlement would classify the purchase as a higher rates transaction, relief may not apply.

Eligibility for Relief

Here are a few scenarios illustrating how these principles work in practice:

Example 1: Beneficiary Acquiring a Property

Consider a scenario where ‘A’ is part of a group that acquired a home while acting as a trustee of a discretionary settlement. ‘A’ is also a beneficiary of this settlement. Now, ‘A’ wants to buy a home for personal use.

• In this case, relief is available for ‘A’, regardless of whether they lived in the trust dwelling.

Example 2: Interest in Possession Settlement

Now take ‘B’, who, along with others, acquired a home as a trustee of an interest in possession settlement. Importantly, ‘B’ does not hold the interest in possession. ‘B’ is planning to purchase a home for their own living space.

• Relief is also available for ‘B’ in this personal property transaction, since they do not hold the interest in possession.

Example 3: Beneficiary Not Allowed Relief

Let’s introduce ‘C’, ‘D’, and ‘E’, who are the trustees for an interest in possession settlement. They acquire a property for beneficiary ‘F’ to live in. However, ‘F’ has never owned any property before.

• In this situation, relief is not available for the purchase because the trustees are considered the purchasers. They will not be using the property as their own or main residence.

Now, suppose ‘F’ later decides to buy a property for their personal use and asks the trustees to rent out the acquired property. In this case:

• Relief will not be available for ‘F’ on their personal purchase. This is because, under the rules, they are seen as holding an interest in a dwelling as specified in Schedule 4ZA. As a result, this transaction is regarded as a higher rates transaction, so relief is prevented under Schedule 6ZA, paragraph 1(7).

What Happens If the Trust Property is Sold?

Let’s explore a further change in circumstances. If the property held in trust had been sold instead of rented out, and then ‘F’ purchases a home for their own occupation:

• In this instance, relief would apply because ‘F’ was never considered the purchaser of the trust property. Therefore, the higher rates would not be applicable to ‘F’s new home purchasing.

Summary of Key Concepts

Understanding the eligibility for stamp duty relief when buying a home can depend on various factors. Key points to remember include:

• Previous acquisitions as a trustee of a settlement do not disqualify a beneficiary from receiving relief.
• Relief is not available if the transaction would result in higher rates due to the buyer holding an interest in a dwelling.
• If the trust property is sold prior to making a purchase as a first-time buyer, relief can still be claimed since the buyer has not held prior property interests.

Understanding these principles can help clarify the eligibility for first-time buyer stamp duty relief, particularly in complicated situations involving trusts and settlements. It’s important for prospective buyers to consider these scenarios as they navigate their purchasing decisions.