Is SDLT payable when property is transferred between trusts to satisfy an old loan note?

Introduction

Readers often ask whether Stamp Duty Land Tax (SDLT) can arise when a property held in trust is moved from one trust structure to another, especially where the arrangement involves an old loan note, an interest in possession trust, and later distributions to family beneficiaries.

The answer usually turns on one central point: is there a chargeable land transaction for SDLT purposes, and if so, what counts as the chargeable consideration? In trust cases, it is not enough just to ask whether legal title changes hands. You also need to consider whether there is any consideration, whether a debt is being discharged, and whether the transfer changes the beneficial ownership of the property.

The Question

A reader described a long-standing trust arrangement dating back to 2003. In broad terms:

• A property was transferred into one settlement, with the price left outstanding under a loan note.
• That loan note was then assigned to a second trust for the benefit of younger family members.
• The intention was that, once the property was sold or otherwise realised, the first trust would use the proceeds to satisfy the loan note owed to the second trust.
• The reader wanted to know whether SDLT could arise if the property itself was transferred from the first trust to trustees connected with the second trust before funds were ultimately distributed to beneficiaries.

Nick’s Explanation

Nick’s core view was that SDLT is not automatically charged just because legal title passes between trustees. The real issue is whether the transfer is a chargeable land transaction for consideration.

In anonymised form, his explanation can be summarised like this:

• If property is transferred between trustees and no new consideration is given, SDLT may not arise.
• Where an old loan note is already in place, what happens may be better analysed as repayment of a pre-existing debt rather than a new land transaction for SDLT purposes.
• Transfers between trustees can fall outside chargeability where there is no consideration and no real change in beneficial ownership.
• However, if the property is transferred in satisfaction of a debt, HMRC may argue that the discharge of that debt is itself chargeable consideration.

Nick also warned that the documentation and legal character of the transaction matter. A transfer framed as simple trust administration may be analysed differently from a transfer expressly made in return for debt release.

The Law

SDLT is charged on land transactions under Part 4 of the Finance Act 2003. The starting point is that there must be a chargeable land transaction, and SDLT is normally calculated by reference to the chargeable consideration.

The main provisions to consider are:

• Finance Act 2003, section 42, which deals with chargeable consideration.
• Finance Act 2003, section 43, which provides that chargeable consideration includes money or money’s worth given for the subject matter of the transaction.
• Finance Act 2003, Schedule 16, paragraph 3, which contains special rules for transfers involving trustees.

In broad terms, SDLT is not charged merely because land is vested in different trustees. What matters is whether the transaction involves consideration and whether the beneficial interests are changing in a way that the legislation treats as chargeable.

Where debt is released, assumed, or satisfied as part of the transfer, that can amount to consideration. That is a familiar SDLT principle. So although a gift of land with no consideration may fall outside SDLT, a transfer made in return for the release of an existing debt may be chargeable.

Trust analysis can be particularly technical because legal ownership and beneficial ownership may move separately. A transfer of bare legal title may be non-chargeable, but a transfer that confers a substantive beneficial entitlement in return for value can be different.

Analysis

The position can be worked through in stages.

First, if the property is sold by the original trustees to an outside buyer, the buyer’s purchase is the obvious SDLT event. The buyer may have SDLT to pay in the normal way, depending on the facts, but that is separate from the internal trust mechanics.

Secondly, if the sale proceeds are then used by the first trust to repay the old loan note held for the second trust, that looks more like repayment of a pre-existing debt than a fresh land transaction. Cash repayment of an old debt is not itself a land transaction. On that analysis, there may be no additional SDLT issue between the two trusts simply because sale proceeds are applied in that way.

Thirdly, the harder question is whether SDLT arises if the property itself, rather than cash sale proceeds, is transferred to trustees connected with the second trust in satisfaction of the loan note.

That is where the risk increases. If the transfer is genuinely just a change in trusteeship with no consideration and no substantive change in beneficial ownership, Schedule 16 may help. But if the property is transferred because the transferee trust is giving credit for, or releasing, the debt represented by the loan note, HMRC may say there is consideration equal to the debt discharged or the value given.

Fourthly, the fact that the loan note was created and assigned many years ago does not by itself remove SDLT risk. The age of the arrangement may help show that no new bargain is being struck, but it does not answer the legal question. The key issue remains whether the present transfer of land is made for consideration.

Fifthly, the beneficial ownership analysis matters. If the second trust is not simply stepping into an existing trustee role but is instead receiving the property in satisfaction of rights it holds as creditor, that can look less like a neutral trustee transfer and more like a transfer for value.

So the practical distinction is this:

• If the property is sold and the debt is then repaid out of cash proceeds, the SDLT concern is usually much lower.
• If the property itself is transferred to satisfy the debt, there is a real risk that the debt release is treated as chargeable consideration.

Nothing in the facts suggests an issue about property being uninhabitable or unsuitable for use, but where that issue does arise in SDLT disputes, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Outcome

The practical conclusion is that SDLT is not automatically payable just because property moves between trusts or between trustees.

However, if the property is transferred in satisfaction of an existing loan note, the discharge of that debt may amount to chargeable consideration. That means SDLT risk cannot be ruled out merely by saying the arrangement is internal to family trusts or that the loan note has existed since 2003.

On the facts described, the cleaner SDLT position is usually where the property is sold and the debt is then paid off from the sale proceeds, rather than transferring the property itself to settle the debt.

Practical Steps

If you are assessing a similar arrangement, the next steps are usually:

1. Review the trust deeds, the original transfer documents, and the loan note wording carefully.
2. Identify exactly who holds the legal title and who holds the beneficial interests before and after the proposed transaction.
3. Decide whether the proposed step is:
   • a sale to a third party followed by repayment of debt, or
   • a direct transfer of land in satisfaction of debt.
4. Check whether any debt is being released, assumed, or otherwise satisfied as part of the land transfer.
5. Consider whether Schedule 16 trustee provisions genuinely apply on the facts.
6. Ensure the legal documents describe the transaction accurately and consistently.
7. Take specialist SDLT advice before completion if the property itself is to be transferred between trusts or trustees in satisfaction of the loan note.

Conclusion

In a trust context, SDLT depends less on labels and more on legal substance. A trustee-to-trustee transfer with no consideration may not trigger SDLT, but a transfer of property made to satisfy a debt may do so. Where an old loan note sits behind the arrangement, the safest analysis usually begins by asking whether there is any present chargeable consideration for the land transfer.

Legal References Used

• Finance Act 2003, Part 4
• Finance Act 2003, section 42
• Finance Act 2003, section 43
• Finance Act 2003, Schedule 16, paragraph 3
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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