Guide on Trusts and Powers for Scottish and Foreign Trusts Under FA03/SCH16

SDLT treatment of Scottish and foreign trusts

For SDLT, a beneficiary under a Scottish trust or a trust governed by non-UK law can be treated as having an equitable interest in land if their rights would amount to one under the law of England, Wales and Northern Ireland. This ensures SDLT applies by looking at the substance of the beneficiary’s rights, not just the legal labels used by the trust’s governing law.

• The rule applies where property is held on trust under Scottish law or the law of a country or territory outside the UK.
• The key test is whether the beneficiary’s rights would count as an equitable interest if the trust were analysed under the law of England, Wales and Northern Ireland.
• If that test is met, the beneficiary is treated as having an equitable interest for SDLT purposes, even if the governing law does not recognise that concept.
• If someone acquires the beneficiary’s interest, SDLT treats that as acquiring an interest in the underlying trust property itself.
• This prevents SDLT results changing simply because a trust uses Scottish or foreign legal concepts instead of English equitable ownership language.
• In difficult cases, the main issue is comparing the beneficiary’s actual rights with what would be recognised as proprietary rights under the law of England, Wales and Northern Ireland.

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SDLT and trusts: Scottish and foreign trusts treated as creating equitable interests

This page explains a special SDLT rule for property held under a trust governed by Scottish law or by the law of a country outside the UK. The rule matters because SDLT often depends on whether a person has an equitable interest in land. Some legal systems do not recognise equitable interests in the same way as the law of England and Wales. The legislation bridges that gap so that SDLT can still apply on a consistent basis.

What this rule is about

SDLT legislation uses concepts drawn from trust law, including the idea that a beneficiary may have an equitable interest in trust property. That works naturally for trusts understood through the law of England and Wales, where the split between legal ownership and equitable ownership is familiar.

The difficulty is that other legal systems may not describe trust rights in the same way. Scottish law, for example, does not use the same equitable ownership framework. The same may be true for trusts governed by the law of another country or territory outside the UK.

Without a special rule, SDLT outcomes could depend on the trust’s governing law rather than on the real substance of the beneficiary’s rights. Schedule 16 paragraph 2 of Finance Act 2003 is intended to prevent that.

What the official source says

The official material states that where property is held in trust under Scottish law, or under the law of a country or territory outside the UK, and the terms of that trust are such that, if they were tested under the law of England, Wales and Northern Ireland, a beneficiary would have an equitable interest in the trust property, that beneficiary is treated for SDLT purposes as having such an interest.

The source also says that if a person acquires the interest of a beneficiary under that trust, the acquisition is treated as involving the acquisition of an interest in the trust property itself.

In other words, the legislation does not ask whether the foreign or Scottish legal system formally recognises an equitable interest. Instead, it asks whether the beneficiary’s rights are equivalent to rights which, under the law of England, Wales and Northern Ireland, would amount to an equitable interest.

What this means in practice

The practical effect is that SDLT cannot be avoided, or accidentally displaced, simply because the trust is governed by a legal system that does not use English equitable concepts.

If the beneficiary’s rights are, in substance, the kind of rights that would amount to an equitable interest under the law of England, Wales and Northern Ireland, SDLT treats the beneficiary as having that interest anyway.

This matters in two main situations.

First, when working out who has an interest in the land for SDLT purposes. A person may be treated as having an interest even though the governing law of the trust would not describe it in those terms.

Second, when someone acquires a beneficiary’s interest under the trust. The legislation treats that as involving the acquisition of an interest in the underlying trust property. So the transaction is not looked at merely as a transfer of abstract trust rights detached from the land.

How to analyse it

A sensible way to approach the rule is to ask the following questions.

• Is the property held under a trust governed by Scottish law or by the law of a country or territory outside the UK?
• What rights does the beneficiary actually have under the trust terms?
• If those same trust terms were considered under the law of England, Wales and Northern Ireland, would they give the beneficiary an equitable interest in the trust property?
• If yes, the beneficiary is treated as having an equitable interest for SDLT purposes, even if the governing law would not normally recognise one.
• If someone acquires that beneficiary’s interest, does the transaction therefore amount, for SDLT purposes, to acquiring an interest in the trust property?

The key point is functional comparison. The question is not what label the governing law uses. The question is whether the beneficiary’s rights are equivalent in substance to an equitable interest recognised in England and Wales and Northern Ireland.

Example

Illustration: A building is held on trust under the law of a non-UK jurisdiction. Under that law, the beneficiary is not said to have an equitable proprietary interest in the English sense. But the trust terms give the beneficiary rights which, if the same arrangement were governed by the law of England and Wales, would amount to an equitable interest in the property.

For SDLT purposes, the beneficiary is treated as having that equitable interest. If another person acquires the beneficiary’s interest under the trust, that acquisition is treated as involving an interest in the building itself, not merely a personal right against the trustees.

Why this can be difficult in practice

The difficult part is usually the comparison exercise. The legislation requires you to ask what the trust terms would mean under the law of England, Wales and Northern Ireland. That can be straightforward in some cases, but not all.

Problems may arise where:

• the foreign trust structure does not map neatly onto UK trust concepts
• the beneficiary’s rights are contingent, limited, discretionary, or heavily restricted
• the trust documentation is incomplete or uses unfamiliar legal terminology
• there is uncertainty about whether the rights are truly proprietary in substance, or are only personal rights against the trustee

The HMRC manual extract is brief and states the statutory effect, but it does not set out a full test for borderline cases. In those cases, the exact terms of the trust and the nature of the beneficiary’s rights will matter.

Key takeaways

• For SDLT, Scottish and foreign trusts can be treated as giving beneficiaries equitable interests even if the governing law does not use that concept.
• The question is whether the trust terms would create an equitable interest under the law of England, Wales and Northern Ireland.
• Acquiring a beneficiary’s interest under such a trust is treated as involving the acquisition of an interest in the underlying trust property.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guide on Trusts and Powers for Scottish and Foreign Trusts Under FA03/SCH16

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