The impact on trusts and estates – your questions answered
One of the big surprises of the Autumn Statement was the announcement that from April 2016 a higher rate of Stamp Duty Land Tax (SDLT) will be payable on the purchase of additional property. The government has issued a consultation document on the new higher rate but we have yet to see any draft legislation. Based on the consultation document, this is how we believe estates and trusts will be affected.
How much higher are the new rates?
The new SDLT rates are 3% higher than normal rates, so as follows:
|£0 – £125,000||3%|
|£125,000 – £250,000||5%|
|£250 – £925,000||8%|
|£925,000 – £1.5m||13%|
I have inherited a property under my Aunt’s Will. Will this change affect me?
No. When the property is transferred to you no money changes hands, and no other payment is made, so no SDLT is payable, whether at the current rate or at the higher rate. However, if you then buy a further property then you will pay SDLT at the higher rate on that purchase.
For example, Aunt Jemima leaves her house to her niece Matilda in her Will. Matilda lives and works in another part of the country so is unable to live in the property. She decides to retain it and let it out. Matilda then buys a flat in which she intends to live. On the assumption that Matilda will not be treated as owning Aunt Jemima’s property until it is transferred into her name by the executors of the estate, (and whether that is the case is not clear at the moment), Matilda will need to buy her flat before the administration of Aunt Jemima’s estate is completed if she is to avoid paying the higher rate of SDLT on her purchase.
What would the position be if Aunt Jemima had put the property into trust during her lifetime?
That depends on the type of trust Aunt Jemima created. If it were a discretionary trust for all her nieces and nephews (so any one of them could receive the property or its income at the trustees’ discretion) then when Matilda buys her flat she will pay the normal rate of SDLT as she will not be treated as owning any part of the trust’s property.
If, however, Matilda had an interest in possession in the property (ie the right to live there or receive any income generated by it) then she will be treated as owning the property for SDLT purposes. When she buys her flat this will therefore be an additional property and she will pay the higher rate of SDLT.
What is the position of discretionary trusts and the higher rate of SDLT?
According to the consultation document, discretionary trusts will pay SDLT at the higher rates on the purchase of any property.
I have set up a discretionary trust to help fund my son’s purchase of his first property. What will be the best way of structuring the purchase?
If the trust buys the property then SDLT will be payable at the higher rate as it is a discretionary trust. It would probably be advisable for the trustees to make a loan to your son instead and for him to purchase the property in his own name. If it is his first purchase he will pay the usual rate of SDLT. Any growth in the value of the property will be your son’s asset rather than the trust’s (which may or may not be acceptable to you) and your son will need to check with any other finance provider that it is happy with this proposal.
When will we know more?
Draft legislation is to be published on Budget Day (16 March) so we will not have any further details until shortly before the new higher rates become payable.
Contact a solicitor
For legal advice about Stamp Land Duty Tax, contact one of our expert solicitors on 0800 652 8025 or contact us online.
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