HMRC SDLT: Overview of Trusts and Settlements for Stamp Duty Land Tax
Understanding Settlements for Stamp Duty Land Tax (SDLT)
A settlement for Stamp Duty Land Tax (SDLT) involves any trust arrangement that is not a bare trust. Various types of trusts, such as interest in possession trusts and discretionary trusts, are considered settlements for SDLT purposes. Trustees are responsible for SDLT obligations when acquiring land, and specific rules apply regarding penalties and interest.
- An interest in possession trust gives the beneficiary rights to the income, but not the capital.
- Discretionary trusts allow trustees to decide how to distribute income and capital.
- Other trusts, like accumulation and maintenance trusts, are also considered settlements.
- Trustees acquiring land are responsible for SDLT notifications and payments.
- Penalties are not imposed on trustees who join after the relevant time.
- Consideration for exercising a power of appointment is treated as land acquisition consideration.
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Read the original guidance here:
HMRC SDLT: Overview of Trusts and Settlements for Stamp Duty Land Tax
SDLTM31720 – Application – Trusts and Powers: Settlements
Understanding Settlements in Stamp Duty Land Tax (SDLT)
A settlement, for the purposes of Stamp Duty Land Tax (SDLT), refers to any trust arrangement that is not classified as a bare trust. There are various types of trust arrangements, each with its own characteristics and rules. This article will explain a few common types of trusts and how they relate to SDLT.
Types of Trusts
1. Interest in Possession Trusts
An interest in possession trust is a type of arrangement where a beneficiary, known as the income beneficiary, has the right to receive the income generated from the trust as it arises. Here’s how it works:
– The trustees are responsible for managing the trust and must pass on all income earned, after deducting any necessary expenses and tax, to the income beneficiary.
– In England, Wales, and Northern Ireland, the beneficiary entitled to this income for their lifetime is called a ‘life tenant.’ In Scotland, the term used is ‘life-renter.’
– Typically, the income beneficiary does not have rights over the capital of the trust. The capital is usually designated to pass to different beneficiaries at a predetermined time or after a defined event occurs.
2. Discretionary Trusts
In a discretionary trust, the trustees have the authority to decide how the income and capital of the trust will be distributed. Key features include:
– The trustees may need to use the income for the benefit of certain beneficiaries but have the discretion to determine who receives payment and in what amounts.
– Beneficiaries of discretionary trusts do not have a right to the trust’s income or capital. Their entitlements are dependent on the trustees’ decisions.
3. Other Types of Trusts
There are several other forms of trusts that are not classified as bare trusts and will also be regarded as settlements for SDLT:
– Accumulation and maintenance trusts, where income may be accumulated for the benefit of the beneficiaries.
– Mixed trusts, which combine elements from different types of trusts.
– Foreign trusts established under the laws of other countries.
Trustees and SDLT Implications
When trustees of a settlement acquire land, they are considered to be the purchasers for SDLT purposes. This means that the usual rules surrounding notification and payment of SDLT apply to the responsible trustees.
Who are the Responsible Trustees?
The responsible trustees in a land transaction are defined as:
– The individuals who are trustees at the effective date of the transaction.
– Any individuals who become trustees after the effective date.
It’s important to note that no penalties or interest will be charged to someone who becomes a responsible trustee after the relevant time for a penalty occurs.
Relevant Time for Penalties
The term ‘relevant time’ is crucial in understanding when penalties may apply:
– For daily penalties or interest on those penalties, the relevant time starts at the beginning of that specific day.
– For all other penalties or interest, the relevant time is when the action or omission causing the penalty took place.
Consideration in Land Transactions
When there is a payment for the exercise of a power of appointment or discretion, this payment is treated as consideration for acquiring an interest in land through that power or discretion.
– For example, if a payment is made to the trustees in exchange for them exercising their power of appointment, allowing an interest in land to be transferred from the trust to an individual, this payment is treated as consideration for acquiring that land interest.
This means that when a power of appointment is exercised, any money or value exchanged is considered a part of the transaction for SDLT purposes.
Further Information on Trusts
If you wish to learn more about trusts, their types, and how they operate, you can visit the HM Revenue & Customs (HMRC) website. They have comprehensive information available, including guidance in the Trusts and Settlements & Estates Manual.
This manual provides an in-depth look at various aspects of trusts and settlements, explaining the responsibilities of trustees, the rights of beneficiaries, and the legal framework governing these arrangements.
In summary, SDLT applies to trusts, known as settlements, and there are several types of trust arrangements. Understanding the distinctions between interest in possession trusts, discretionary trusts, and other modern trust structures is essential for both trustees and beneficiaries to ensure compliance with SDLT regulations. The implications of acquiring land through trusts can be significant, and trustees need to be aware of their responsibilities regarding notification and payment of SDLT, as well as the potential penalties for non-compliance.
For those involved in managing trusts or inheriting assets within these arrangements, keeping abreast of SDLT regulations is vital. For further assistance or clarification on specific scenarios, consider consulting a professional or accessing additional resources from HMRC.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Overview of Trusts and Settlements for Stamp Duty Land Tax
