SDLTM09940 - SDLT - increased rates for non-resident transactions: Bare trusts acquiring new lease; and purchases by settlements where a beneficiary entitled to occupy, or to income from, dwelling - paras 13 and 14 Sch 9A FA03

(All legislative references are to Sch 9A FA03 unless otherwise stated)

General guidance on the SDLT treatment of Trusts can be found at SDLTM31400 and SDLTM31700 onwards.

Purchases of dwellings by trustees are treated differently depending whether the trustee is the trustee of a bare trust, a trust with life or income interests or any other trust.

Bare trust acquiring new lease – para 13 Sch 9A FA03

A bare trust is one where the beneficiary or beneficiaries are absolutely entitled to the property against the trustees. It also includes cases where the beneficiary would be absolutely entitled, but for disability or age preventing the beneficiary from holding the legal title.

Generally, where a person acquires a chargeable interest as a bare trustee, SDLT applies as if the interest was vested in, and the acts of the trustee in relation to it, were the acts of the beneficiary or beneficiaries. However, this treatment does not apply in relation to the grant of a lease. Paragraph 3(3) Sch 16 FA 03 provides that where a lease is granted to a person as a bare trustee, they are treated as the purchaser of the whole of the interest acquired in relation to the grant. Therefore, where a bare trust acquires a lease, the trustee will be the chargeable person for SDLT purposes.

However, for the purposes of the surcharge, where (paragraph 13(1)):

  • the chargeable transaction is in relation to the grant of a lease on a dwelling or dwellings;
  • the purchaser is, or (if there is more than one) the purchasers include, a person who is acting as a trustee of a bare trust; and
  • paragraph 3(3) Sch 16 FA03 applies to the trustee,

then, whether the chargeable transaction is a “non-resident transaction” is determined by reference to the residence status of the beneficiary or beneficiaries, and not the trustee (paragraph 13(2)).

Example

Vincent and Josephine are trustees of the Regent trust (a bare trust). Davina is the sole beneficiary of the trust.

Using trust funds, Vincent and Josephine purchase a new 25 year leasehold interest in a residential property in Northern Ireland on 1 May 2027 for £60,000. As the chargeable transaction is in relation to the grant of a lease, paragraph 3(3) Sch 16 FA03 applies to them. In order to determine whether this is a non-resident transaction, the residence test set out at paragraph 4(1) is applied to Davina.

Purchase by settlement if beneficiary entitled to occupy, or to income from, dwelling – para 14 Sch 9A FA03

For the purposes of SDLT, a settlement is any trust arrangement other than a bare trust.

A “life interest” trust is one where one or more beneficiaries are entitled to occupy the dwelling for life. An “interest in possession” trust is one where one or more beneficiaries are entitled to the income earned in respect of the dwelling.

Generally, where a person acquires a chargeable interest as a trustee of a settlement, SDLT applies as if the interest was vested in, and the acts of the trustee in relation to it, were the acts of the beneficiary or beneficiaries. Nonetheless, the trustee will be the chargeable person for SDLT and is the person required to make a SDLT return.

However, for the purposes of the surcharge, where the purchaser of a dwelling or dwellings is, or (if there is more than one) the purchasers include, a person who is acting as a trustee of a life interest or interest in possession trust (paragraph 14(1)), then whether the chargeable transaction is a “non-resident transaction” is determined by reference to the residence status of the beneficiary or beneficiaries, and not the trustee (paragraph 14(2)).

Example

Sofya is a trustee of the Voronova family trust (not a bare trust). Morgan is the sole beneficiary of the trust.

Sofya uses trust funds to purchase a freehold residential property in England on 1 August 2023 for £400,000. Under the terms of the settlement, Morgan is entitled to any income earned in respect of the property.

Therefore, Morgan’s residence status is used to establish whether Sofya is non-UK resident in relation to the transaction. However, Sofya is still the chargeable person for SDLT and the person required to make the SDLT return.

It is important to note that settlements under a unit trust scheme are excluded from this rule (paragraph 14(3)). For SDLT purposes, section 101 FA03 treats unit trust schemes as if the trustees were a company, and the rights of the unit holders were shares in the company. See SDLTM09890 for details of how the residence status of trustees of a unit trust scheme are determined in relation to a transaction for the purposes of the surcharge.