Estate Planning

Bassman1960

Firstly I write to advise people that are thinking about putting their main residence into a family trust. If you have any intention of doing so, but at the same time feel that you may at a future date sell that property and buy another, do not proceed with trust arrangements until you have moved house. I recently did this and although I asked the company that set it up if there would be any issues in moving properties, I was told that the change was very easy to achieve and there would be no problems. Imagine my surprise, when several months later I did start the selling process and put the matter in the hands of my solicitor. It appears that because the trustees other than the two of us are my wife's two children by a former marriage and being in their late 30s live in their own properties HMRC view the purchase of this new house as a second home, even though it is our only property and our main residence and so we are liable to an extra £12000 stamp duty on top of the basic rate. Anyone on here think I've got a case of being miss sold the service by the company involved?

GDB2222

You may have been mis-sold. Is the company that did the selling regulated, and by whom?

And, out of curiosity, can the problem be resolved by changing the trustees to you and your wife?

Bassman1960

I’ve been advised by my conveyancing solicitor that to annul the trust before the sale of the house could be seen by HMRC as tax evasion. For the trust to work there still has to be other family members as as trustees

GDB2222

Bassman1960 said:

I’ve been advised by my conveyancing solicitor that to annul the trust before the sale of the house could be seen by HMRC as tax evasion. For the trust to work there still has to be other family members as as trustees

Given that there’s £12k involved, I’m guessing that you have asked for advice from a tax expert, rather than relying on a conveyancing expert?  

Bookworm105

GDB2222 said:

And, out of curiosity, can the problem be resolved by changing the trustees to you and your wife?

of course not, the whole point of a family trust is to remove assets from (potential) inheritance tax liability

if the mother and father are the only trustees of the property they live in then ... circular argument!

as for liability to additional rate SDLT then let's await @SDLT_geek

GDB2222

Bookworm105 said:

GDB2222 said:

And, out of curiosity, can the problem be resolved by changing the trustees to you and your wife?

of course not, the whole point of a family trust is to remove assets from (potential) inheritance tax liability

if the mother and father are the only trustees of the property they live in then ... circular argument!

as for liability to additional rate SDLT then let's await @SDLT_geek

Could you kindly explain this. It’s difficult to understand how IHT is avoided if the op is living in the property, unless of course he is paying market rent. 

SDLT_Geek

Bassman1960 said:

Firstly I write to advise people that are thinking about putting their main residence into a family trust. If you have any intention of doing so, but at the same time feel that you may at a future date sell that property and buy another, do not proceed with trust arrangements until you have moved house. I recently did this and although I asked the company that set it up if there would be any issues in moving properties, I was told that the change was very easy to achieve and there would be no problems. Imagine my surprise, when several months later I did start the selling process and put the matter in the hands of my solicitor. It appears that because the trustees other than the two of us are my wife's two children by a former marriage and being in their late 30s live in their own properties HMRC view the purchase of this new house as a second home, even though it is our only property and our main residence and so we are liable to an extra £12000 stamp duty on top of the basic rate. Anyone on here think I've got a case of being miss sold the service by the company involved?

The SDLT position here will depend on the terms of the trust, more than the identity of the trustees.

For example if the trust is a discretionary settlement (unlikely I guess) then should the trust sell one home and buy another, the extra 3% stamp duty land tax (SDLT) would apply to the purchase.

Another example is a trust which gives someone (for example OP and their wife) a right to live in the property for life.  If that kind of trust buys a property, then whether the 3% extra applies, is judged as against only those having the right to live in the property.  If OP and his wife have a right to live in the new property, then it would be judged against them alone, not against the wife's two children.

If the trust buying the new property is a simple co-ownership, with four parties having defined beneficial shares, then the SDLT on the purchase would be judged against the circumstances of all four parties (here leading to the extra 3% being due). 

Bookworm105

GDB2222 said:

Bookworm105 said:

GDB2222 said:

And, out of curiosity, can the problem be resolved by changing the trustees to you and your wife?

of course not, the whole point of a family trust is to remove assets from (potential) inheritance tax liability

if the mother and father are the only trustees of the property they live in then ... circular argument!

as for liability to additional rate SDLT then let's await @SDLT_geek

Could you kindly explain this. It’s difficult to understand how IHT is avoided if the op is living in the property, unless of course he is paying market rent. 

exactly, but the issue was about removing the 2 children from the trust...leaving only the OP, so negating any estate planning - the thread is entitled that after all.

Bassman1960

SDLT_Geek said:

Bassman1960 said:

Firstly I write to advise people that are thinking about putting their main residence into a family trust. If you have any intention of doing so, but at the same time feel that you may at a future date sell that property and buy another, do not proceed with trust arrangements until you have moved house. I recently did this and although I asked the company that set it up if there would be any issues in moving properties, I was told that the change was very easy to achieve and there would be no problems. Imagine my surprise, when several months later I did start the selling process and put the matter in the hands of my solicitor. It appears that because the trustees other than the two of us are my wife's two children by a former marriage and being in their late 30s live in their own properties HMRC view the purchase of this new house as a second home, even though it is our only property and our main residence and so we are liable to an extra £12000 stamp duty on top of the basic rate. Anyone on here think I've got a case of being miss sold the service by the company involved?

The SDLT position here will depend on the terms of the trust, more than the identity of the trustees.

For example if the trust is a discretionary settlement (unlikely I guess) then should the trust sell one home and buy another, the extra 3% stamp duty land tax (SDLT) would apply to the purchase.

Another example is a trust which gives someone (for example OP and their wife) a right to live in the property for life.  If that kind of trust buys a property, then whether the 3% extra applies, is judged as against only those having the right to live in the property.  If OP and his wife have a right to live in the new property, then it would be judged against them alone, not against the wife's two children.

If the trust buying the new property is a simple co-ownership, with four parties having defined beneficial shares, then the SDLT on the purchase would be judged against the circumstances of all four parties (here leading to the extra 3% being due). 

 Thank you for posting a reply, I probably need to look at the wording on the trust. However, I notice in the second paragraph you use the phrase "the extra 3% stamp duty land tax (SDLT) would apply to the purchase." Why is the calculation I have been sent stating 8%?

Tax Banding Higher Residential Rate (2nd/BTL)
Tax Band (£)                  % Taxable Sum (£)    Tax (£)
0 - 250,000                     3      250,000            7,500.00
250,000 - 925,000          8      137,000            10,960.00 

Thanks

anselld

Because it is the normal 5% for amounts over 250k plus the additional 3%.

GDB2222

Bassman1960 said:

SDLT_Geek said:

Bassman1960 said:

Firstly I write to advise people that are thinking about putting their main residence into a family trust. If you have any intention of doing so, but at the same time feel that you may at a future date sell that property and buy another, do not proceed with trust arrangements until you have moved house. I recently did this and although I asked the company that set it up if there would be any issues in moving properties, I was told that the change was very easy to achieve and there would be no problems. Imagine my surprise, when several months later I did start the selling process and put the matter in the hands of my solicitor. It appears that because the trustees other than the two of us are my wife's two children by a former marriage and being in their late 30s live in their own properties HMRC view the purchase of this new house as a second home, even though it is our only property and our main residence and so we are liable to an extra £12000 stamp duty on top of the basic rate. Anyone on here think I've got a case of being miss sold the service by the company involved?

The SDLT position here will depend on the terms of the trust, more than the identity of the trustees.

For example if the trust is a discretionary settlement (unlikely I guess) then should the trust sell one home and buy another, the extra 3% stamp duty land tax (SDLT) would apply to the purchase.

Another example is a trust which gives someone (for example OP and their wife) a right to live in the property for life.  If that kind of trust buys a property, then whether the 3% extra applies, is judged as against only those having the right to live in the property.  If OP and his wife have a right to live in the new property, then it would be judged against them alone, not against the wife's two children.

If the trust buying the new property is a simple co-ownership, with four parties having defined beneficial shares, then the SDLT on the purchase would be judged against the circumstances of all four parties (here leading to the extra 3% being due). 

 Thank you for posting a reply, I probably need to look at the wording on the trust. However, I notice in the second paragraph you use the phrase "the extra 3% stamp duty land tax (SDLT) would apply to the purchase." Why is the calculation I have been sent stating 8%?

Tax Banding Higher Residential Rate (2nd/BTL)
Tax Band (£)                  % Taxable Sum (£)    Tax (£)
0 - 250,000                     3      250,000            7,500.00
250,000 - 925,000          8      137,000            10,960.00 

Thanks

It says 8% because the normal rate is 5%, but you have to pay 3% more. 

The first chunk up to £250k is normally 0%, but you are being charged 3%. 

As sdlt geek says, it is strange that your solicitor thinks it’s the choice of trustees that is the problem, rather than the terms of the trust.