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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Scope: How much is chargeable: Non-cash consideration: Nil-rate band discretionary trusts

A nil-rate band discretionary trust is commonly established under the Will of a deceased person.

The typical form is a pecuniary legacy, not exceeding the nil-rate band for inheritance tax, to be held by the trustees of the nil-rate band discretionary trust on discretionary trust for a specified class of beneficiaries.

The residue of the estate, often including the matrimonial home, commonly passes to the surviving spouse or civil partner, although it may pass to residuary trustees.

Where the personal representatives discharge the pecuniary legacy by payment of the specified sum to the trustees no Stamp Duty Land Tax issue arises.

However in many cases the personal representatives satisfy the legacy otherwise than by payment of the specified sum. It is in these cases that a stamp duty land tax liability may arise on the transfer of the matrimonial home or other land to the surviving spouse or civil partner or residuary trustees.

The transfer of an interest in land, whether to a residuary beneficiary or to any other person, and whether in satisfaction of an entitlement under a Will or not, is a land transaction for Stamp Duty Land Tax (SDLT) purposes.

The question is whether the transferee gives any chargeable consideration for the transfer. Very often a beneficiary gives no chargeable consideration for the transfer of land under a Will. However transactions in connection with nil-rate band discretionary trusts may result in the beneficiary giving chargeable consideration.

The commonest examples of such transactions, and their SDLT consequences, are as follows:

  • The nil-rate band discretionary trustees accept the surviving spouse’s or civil partner’s promise to pay in satisfaction of the pecuniary legacy and in consideration of that promise land is transferred to the surviving spouse or civil partner.

The promise to pay is chargeable consideration for SDLT purposes.

  • The nil-rate band discretionary trustees accept the personal representatives’ promise to pay in satisfaction of the pecuniary legacy and land is transferred to the surviving spouse or civil partner in consideration of the spouse or civil partner accepting liability for the promise.

The acceptance of liability for the promise is chargeable consideration for SDLT purposes. The amount of chargeable consideration is the amount promised, not exceeding the market value of the land transferred.

  • Land is transferred to the surviving spouse or civil partner and the spouse or civil partner charges the property with payment of the amount of the pecuniary legacy. The nil-rate band discretionary trustees accept this charge in satisfaction of the pecuniary legacy.

The charge is money’s worth and so is chargeable consideration for SDLT purposes

  • The personal representatives charge land with the payment of the pecuniary legacy. The personal representatives and nil-rate band discretionary trustees also agree that the trustees have no right to enforce payment of the amount of the legacy personally against the owner of the land for the time being. The nil-rate band discretionary trustees accept this charge in satisfaction of the legacy. The property is transferred to the surviving spouse or civil partner subject to the charge.

There is no chargeable consideration for SDLT purposes provided that there is no change in the rights or liabilities of any person in relation to the debt secured by the charge.

Deed of variation to a Will made by beneficiaries after the death of a person

A deed of variation to a person’s Will made by beneficiaries after the death of the person may effect a land transaction if it alters the beneficial interests in land, for example by settling land in trust.

However, placing a charge on land is not in itself a land transaction. In addition FA03/SCH3/PARA4 provides that under certain conditions a land transaction effected by a deed of variation is exempt from charge.

Other taxes

Please note this guidance does not cover any taxes other than SDLT. Neither does it cover the powers or fiduciary responsibilities of trustees of nil-rate band discretionary trusts, or of personal representatives, under general law.

Trustees and personal representatives may wish to take independent legal advice on those aspects.