Stamp Duty on a property purchase by a Trust

Unicornucopia

My brother and I are Trustees of a Protective Trust created in the will of our late mother. The Trust was set up for our sister who has mental incapacity with the intention that it is used for her benefit, principally to buy a property for her to live in. The property will be in the name of the Protective Trust. We have no personal beneficial interest in the Trust other than when our sister dies the Trust ceases and the assets will be distributed to us, or our descendants. Both my brother and I own our own properties but my sister has never owned a property. If the property was bought in her own name she would be classed as a first time buyer. We are in the end stages of purchasing a property through the Trust but we are receiving conflicting advice from our solicitors. I believe we need to pay SDLT at the higher rate. Am I correct?

oldbikebloke

I'm sure you have researched this yourself and I'm no lawyer, so take the following with extreme caution...

Brief research says a protective trust is a form of discretionary trust, so this page explaining discretionary trusts seems relevant: " the higher rates of SDLT will apply to all purchases (including the first purchase) of residential property by the trustees.... as the beneficiaries' interest is considered to be too remote"

https://www.michelmores.com/news-views/news/how-does-stamp-duty-land-tax-affect-purchase-residential-property-trusts

SDLT_Geek

Yes, if the protective trust is a form of discretionary trust then we would expect the 3% surcharge to apply.

If the trust buying it is a bare trust for the sister, or if under the trust the sister has a right to live in the property for life or a right to income from the property, then the issue of whether the 3% surcharge applies would be judged against her property circumstances; so presumably in this case the 3% surcharge would not apply.

getmore4less

I would check the HMRC manual  as things like Life interest trust the beneficial interest lies with the life tenant.

I would have thought something similar would apply for a protective trust set up for a vulnerable person.
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09835

oldbikebloke

getmore4less said:

I would check the HMRC manual  as things like Life interest trust the beneficial interest lies with the life tenant.

I would have thought something similar would apply for a protective trust set up for a vulnerable person.
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09835

my earlier link is simply a rewording of the HMRC rules obviously and thus it all comes down to the fact OP specifically states there is a Protective Trust created in writing by the will. It needs a lawyer to say whether that is therefore a bare trust for a disabled person or not. To the extent that wikipedia is (un)reliable it suggests it cannot be a bare trust   https://en.wikipedia.org/wiki/Protective_trust

getmore4less

 I think they act more like an IIP trust as described in this case by the OP ,the daughter has the life interest then when they die they are the remaindermen.
these days I think IIP or disabled trusts are more common.
this is from the IHT manual, (note the 2006 changes to IIP trusts)
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm42804#:~:text=Special%20trusts%3A%20protective%20trusts&text=Protective%20trusts%20are%20designed%20to,which%20is%20the%20governing%20section.

getmore4less

IT is worth doing a lot more investigation as there may be other tax liabilities to consider and IHT on the daughters estate when that time comes.

Unicornucopia

Thanks everyone for your comments.  The actual wording of the will which established the protective trust is:"As to the remaining one of such share {1/3rd} my Trustees shall hold same Upon Trust: (a) to hold the income thereof upon protective trusts for the benefit of my daughter xxxxxx of xxxxx for her lifetime and (b) subject thereto to hold the capital and income thereof for my sons xxx and xxx in equal shares absolutely (c) In addition to all other powers conferred by law under this will my Trustee may at any time or times raise capital out of the said share for the purpose of paying it to or applying it for the benefit of my said daughter xxxx." My reading of this is that she has a life interest in the income and this can only be generated from the capital so, in essence, she has a life interest in both. Therefore I now believe there will be no SDLT. This would align with the Completion Statement I received today from the solicitors which makes no mention of SDLT, just a completion fee. The tax manual gives an example: "J and K are individuals acting as trustees for the Z trust.  Using trust funds, they purchase a dwelling.  The Z trust entitles an individual beneficiary, L, to occupy the dwelling for life or entitles L to the income from the property.  J and K must consider whether the higher rates would apply if L were purchasing the dwelling rather than them.  So if L has another interest in a dwelling (Condition C) on the effective date and the purchase is not a replacement of L’s main residence (Condition D) then the higher rates will apply, otherwise they will not." I will worry about IHT when the time comes!