Read the original guidance here:
HMRC SDLT: Understanding Bare Trusts: Beneficiary Rights and Stamp Duty Land Tax Implications

Bare Trusts and Their Implications in UK Law

A bare trust, recognized in England, Wales, and Northern Ireland, or referred to as a simple trust in Scotland, is a legal arrangement where each beneficiary has full rights to the trust property. This means that beneficiaries have an uncontested right to the property covered by the trust.

Understanding Absolute Entitlement

The term ‘absolutely entitled’ is explained in detail in the Capital Gains Manual under CG34320-34352. In simple terms, this means:

• Beneficiaries can access or receive the property in the trust either right away or by giving proper notice to the trustees, based on the trust’s rules.
• The trustees do not have the authority to manage or deal with the trust property without the beneficiary’s consent, as long as the beneficiary is absolutely entitled.

Trustees and Beneficiaries

Even if trustees must pay certain expenses or bills related to the trust, this does not change the beneficiary’s right to the trust property. If the trustees choose not to give the property to the beneficiary until these expenses are settled, it does not affect the beneficiary’s absolute entitlement. The beneficiary is still seen as having rights over the trust property.

It’s also important to note that multiple individuals can be absolutely entitled to the trust property. Each individual must hold the rights described previously, ensuring that all have equal access to the trust property.

Stamp Duty Land Tax (SDLT) and Bare Trusts

When a person becomes a bare trustee and acquires a chargeable interest, the rules for Stamp Duty Land Tax (SDLT) apply as though the interest belonged to the person or people for whom they are acting as trustee. This means that any transactions related to the trust property will be treated as if the beneficiaries themselves were carrying them out.

Example of SDLT Application

An example to illustrate how SDLT applies to a bare trust can be found at SDLTM31710a. In this example, the situation demonstrates how a bare trustee’s actions are deemed to be those of the beneficiaries when calculating any associated SDLT responsibilities.

Key Characteristics of Bare Trusts

• Immediate Access: Beneficiaries have direct access to the property held in trust upon their request.
• No Trustee Control: Trustees cannot make decisions about the trust property without the beneficiary’s consent.
• Multiple Beneficiaries: More than one individual can have absolute rights to the property as long as they share equal rights over it.

Trustees and Their Roles

While trustees have management responsibilities, their power is limited when it comes to making decisions about the property held in a bare trust. They cannot restrict beneficiaries from receiving their property. Instead, they act primarily as custodians to ensure the trust’s rules are followed, often focusing on specific administrative tasks such as using trust funds to cover ongoing expenses.

Determining Benefits and Responsibilities

Even when trustees hold certain responsibilities and must meet various outgoings, these obligations do not diminish the full rights of the beneficiaries. For example, if the trustees need to pay off debts or fees before giving beneficiaries access to the trust property, they cannot deny beneficiaries their rights. This situation reinforces the idea that beneficiaries are still entirely entitled to their share.

Implications of Acquiring Chargeable Interests as Bare Trustee

When a bare trustee acquires a chargeable interest in property, the SDLT implications become significant as they treat the acquisition as if it belongs to the beneficiaries. This clarification of responsibility ensures that the correct amount of SDLT is calculated based on the transactions that occur under the trust:

• The transfer of property into the trust.
• Any acquisition or disposal of property by the trust.

Working with Bare Trusts in Practice

Given the simplified structure of bare trusts, they are easier to manage for both trustees and beneficiaries. This simplicity also facilitates smoother transactions, as beneficiaries often understand their rights and the properties involved. Here are some practical considerations:

• Trustees should maintain clear records of property and any transactions associated with the trust property.
• Beneficiaries should remain informed about their rights to access the property and any associated tax implications.
• Both parties should seek to understand how outgoings may affect the distribution and availability of the trust property.

Conclusion on Legal Responsibilities and Rights

Understanding the operational framework of bare trusts is critical. By grasping the underlying principles of absolute entitlement and the limits placed on trustees, both beneficiaries and trustees can navigate their responsibilities effectively. Appropriate management ensures that the trust operates within the bounds of the law while protecting the rights of all parties involved.