Avoid second property stamp duty using a trust?

rjwill10

Hi,

I've been really angered this week by news that I will have to pay massively inflated stamp duty rate to buy a second residential property (even though I'm doing as the government want and am saving for my retirement with a rental property). I am the sole owner of this property (mortgaged) but the stamp duty hike would penalise my girlfriend as well who is a first time buyer, wanting to by a house with me.

I've been looking at various ways to get around this unfair tax, but there seems to be no real solution. It got me thinking that there may be a loophole in transferring a property to a trust. If i transfer ownership of my property to a trust, doesn't this then mean that I am no longer the legal owner, and therefore cannot be charged the additional stamp duty?

Seems like a basic work around, but can't seem to find a yes or no answer.

SamDude

Don't think it will work. Looked at this and the second property SD tax is pretty watertight.

rjwill10

Yeah, seems to be, but from my research, putting a property into a trust legally transfers ownership of the property to the trust, just leaving me as the settlor, trustee and beneficiary, so I'm not sure I can be taxed on a property that on paper, I don't own. It's an interesting question though. I'll set up a meeting with a solicitor to find out.

unforeseen

If it is a bare trust then it is treated as if the beneficial owner bought it.

For life interest or interest in possession trusts then the beneficiary with life interest or interest in possession will still be treated as the owner for SDLT purposes.


Discretionary trusts. The trust will be liable to higher rates even where there is no beneficiary with a right to income or entitled to occupy under the terms of the trust


In other words, they will get their pound of flesh regardless

martinsurrey

rjwill10 wrote: »

Yeah, seems to be, but from my research, putting a property into a trust legally transfers ownership of the property to the trust, just leaving me as the settlor, trustee and beneficiary, so I'm not sure I can be taxed on a property that on paper, I don't own. It's an interesting question though. I'll set up a meeting with a solicitor to find out.

don't waste your money

Additional SDLT guidance

see section 2.21

if its a bare trust (which I'm sure it would be), you would still be hit for the 3% additional SDLT.

unless you structure the trust in such a way that your connection to it is remote (and I doubt you want that) you'll not avoid it.

"Property is sometimes held by trustees in trusts, and to ensure the fairness and integrity of the tax regime the higher rates of SDLT will apply to some purchases made by trusts.

Purchases by trustees of bare trusts will continue to be treated as if they are made by the beneficial owner and there will be no difference in treatment compared to the beneficial owner purchasing themselves"

rjwill10

Thanks, that was an interesting bit of reading...difficult to fully understand though.

If I am a beneficiary of the trust, I'll qualify for the SD, but if I set up a trust were I am not a beneficiary, or a trustee, then it seems like I could be exempt, but may have misread the examples.

I could easily put the property into a trust where my mother is the trustee and beneficiary, and modify the trust later in life.

rjwill10

On reading the government guidance again, it seems like the explanation given in section 2.21 is more focused on a trust purchasing a second property. If I were to purchase a second property, it would be outside of the trust that holds in interests of my first property.

martinsurrey

rjwill10 wrote: »

On reading the government guidance again, it seems like the explanation given in section 2.21 is more focused on a trust purchasing a second property. If I were to purchase a second property, it would be outside of the trust that holds in interests of my first property.

no,

In most cases the trust will be transparent, it will be considered WHO benefits from the trust and then the trust will pay the SDLT as if that person bought the property directly.