Can a declaration of trust stop the higher SDLT rate on a new home purchase?

Introduction

People often ask this question where one property is already in their name, but someone else lives there and is said to be the real beneficial owner. The concern is usually whether buying a new home will trigger the higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings.

The issue is not decided simply by whose name appears on the Land Registry title. For SDLT, beneficial ownership can matter. But changing the ownership position shortly before a purchase can create wider tax and legal consequences, especially for inheritance tax, trusts, and any later attempt to reverse the arrangement.

The Question

A taxpayer owns a dwelling in their sole legal name and is responsible for the mortgage. They have never lived in that dwelling. A parent has lived there rent-free since it was bought. The taxpayer now wants to buy a new home jointly with a partner, and that new property will be their main residence.

The taxpayer wants to know:

• whether declaring that the parent is the sole beneficial owner of the existing dwelling would prevent the higher SDLT rates applying to the new purchase;
• how that would affect succession on the parent’s death;
• how HMRC would view the property for inheritance tax purposes if legal title and beneficial ownership are separated; and
• whether the arrangement could later be undone, and if so, with what tax consequences.

Nick’s Explanation

Nick’s main point was that the answer depends heavily on the true beneficial ownership of the first property and on the facts as a whole. He also noted that property value can matter in some alternative structures, particularly where a company is considered.

His broad SDLT view was that if the taxpayer genuinely ceases to have any beneficial interest in the existing dwelling, HMRC may not treat them as owning that dwelling for the purposes of the higher rates on the new purchase. In anonymised form, his view can be summarised like this:

“If the property is genuinely held on trust for the parent alone, and the taxpayer no longer has any beneficial interest in it, HMRC may not treat the taxpayer as owning an additional dwelling for SDLT purposes.”

He also warned that HMRC’s published guidance is not especially clear on this point and that trusts bring separate inheritance tax and trust law issues. He therefore suggested taking specialist trust advice before doing anything formal.

Nick mentioned an alternative possibility of transferring the property to a company, but this is usually not a simple fix. A company transfer can itself trigger SDLT on market value, and if a connected person continues to occupy a high-value dwelling, the Annual Tax on Enveloped Dwellings rules may also need to be considered.

The Law

The higher rates of SDLT for additional dwellings are found in Schedule 4ZA to the Finance Act 2003. In broad terms, the higher rates can apply where, at the end of the day of the transaction, the purchaser has a major interest in another dwelling and is not replacing their only or main residence.

For these purposes, SDLT looks at whether the purchaser holds a major interest in another dwelling. Legal title is important, but beneficial ownership can also be relevant. A person holding property purely as bare trustee may not be treated in the same way as a person who owns the beneficial interest.

Where a trust exists, the SDLT treatment depends on the nature of the trust and who is treated as entitled to the property. HMRC’s guidance at SDLTM09815 discusses trust interests in the context of the higher rates, but it does not provide a complete answer for every private arrangement.

Inheritance tax is governed mainly by the Inheritance Tax Act 1984. As a general rule, inheritance tax follows beneficial ownership rather than bare legal title. If a parent is genuinely entitled to the whole beneficial interest in a property, that interest would normally be part of the parent’s estate rather than the legal owner’s estate. But the exact tax effect depends on how the arrangement arose, whether there was any gift, whether there was any reservation of benefit, and whether any trust provisions apply.

If ownership is later transferred back, that later step may itself be a land transaction for SDLT purposes and may also have capital gains tax and inheritance tax consequences depending on the structure used.

Analysis

The first question is whether the taxpayer already owns another dwelling for the purposes of Schedule 4ZA when buying the new home.

If the existing property is in the taxpayer’s sole name both legally and beneficially, the higher rates are likely to apply to the new purchase unless the purchase qualifies as a replacement of a previous only or main residence. On the facts given, the existing property has never been the taxpayer’s own residence, so the replacement rules are unlikely to help.

The taxpayer therefore looks to beneficial ownership. If, before the new purchase, the taxpayer truly holds the existing property only as nominee or bare trustee for the parent, and the parent is the sole beneficial owner, there is an argument that the taxpayer should not be treated as owning that dwelling for the higher rates.

But this is where the facts become critical.

• If the taxpayer originally bought the property with their own money, took the mortgage in their own name, and has paid the mortgage throughout, that does not naturally point to the parent already being the sole beneficial owner.
• If a declaration of trust is created now, it may not simply confirm an existing position. It may amount to a new transfer of beneficial ownership from the taxpayer to the parent.
• If that transfer is done shortly before the new purchase mainly to avoid the higher rates, HMRC may look closely at whether the arrangement reflects the true substantive ownership position.

So the practical question is not just whether a declaration of trust can exist. It is whether the declaration accurately records the real beneficial ownership and whether the taxpayer has truly given up all economic benefit.

On the will point, if the parent is genuinely the sole beneficial owner, then the beneficial interest would usually pass under the parent’s will or intestacy. In that situation, it is sensible for the will to deal expressly with that interest. Bare legal title in another person’s name does not by itself determine who inherits the beneficial ownership.

On inheritance tax, if the parent is genuinely the beneficial owner, the property interest would generally be considered as part of the parent’s estate. The fact that someone else holds legal title would not usually prevent that. However, if the taxpayer gave the beneficial interest away to the parent, one must consider whether that transfer was effective, whether there were any retained benefits, and whether there are other tax consequences from the transfer itself.

On reversing the arrangement later, this is legally possible in some structures, but it is not tax-neutral. If the parent later transfers the beneficial interest back to the taxpayer, that may amount to a chargeable land transaction. SDLT may arise depending on chargeable consideration, including mortgage debt taken on or assumed. Capital gains tax and inheritance tax issues may also arise. In short, a trust should not be created on the assumption that it can later be unwound without cost.

As for the company route mentioned by Nick, that usually creates its own tax bill rather than solving the problem neatly. A transfer of a dwelling into a company is commonly charged to SDLT on market value where connected parties are involved. If the dwelling is high in value and a connected person occupies it, ATED may also need to be considered. For most family situations, that route needs careful modelling before it is even considered.

This is not an “uninhabitable” case, but for completeness readers should note that where buyers try to avoid the higher rates or other SDLT consequences by arguing that a property is not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Ordinary disrepair or inconvenience will often not be enough.

Outcome

A declaration of trust may help only if it reflects a genuine and complete transfer of beneficial ownership to the parent, or if it accurately records that the parent already had that beneficial ownership. If the taxpayer still has any real beneficial interest, the higher SDLT rates on the new home are likely to remain in point.

Even if the SDLT position can be improved, the arrangement may move the property into the parent’s estate for inheritance tax purposes and may complicate succession, trust administration, and any future transfer back. It is therefore not a simple SDLT-only planning step.

Practical Steps

A reader in this position should usually do the following before exchanging contracts on the new home:

• establish the true beneficial ownership history of the existing property, including who provided funds, who paid the mortgage, and what was intended when the property was bought;
• check whether they have ever owned and disposed of a previous only or main residence, because that can affect whether the new purchase is a replacement;
• take specialist trust advice before signing any declaration of trust, especially where legal title, mortgage liability and beneficial ownership are to be split;
• take inheritance tax advice on whether the property would fall into the parent’s estate and how the parent’s will should deal with the beneficial interest;
• consider whether any transfer of beneficial ownership now could itself have tax consequences;
• avoid assuming that the arrangement can later be reversed without SDLT, capital gains tax or inheritance tax consequences; and
• if considering a company transfer, obtain specific advice on market value SDLT, connected party rules, and possible ATED exposure.

Conclusion

The key issue is beneficial ownership, not just whose name is on the title. If the taxpayer genuinely no longer owns any beneficial interest in the first property, there may be an argument that the higher SDLT rates should not apply to the new home. But creating that position now may itself be a taxable and legally significant step, so it should be reviewed carefully before the purchase proceeds.

Legal References Used

• Finance Act 2003, Schedule 4ZA
• HMRC Stamp Duty Land Tax Manual, SDLTM09815
• Inheritance Tax Act 1984
• 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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