stamp duty when purchasing house - complex deeming provisions

peteasa

I have a question that might effect many people when they are acting as executor for the estate of a person who has died.

As executor you are a trustee for the estate including any property that was owned.  You can for example as executor invest any money during the duration process of winding up the estate so that the estate does not loose out.  So you have quite a bit of control over the estate.

As a trustee under tax law you are deemed to be the owner as far as stamp duty is concerned of the house held in trust.

Suppose you just happen to be in the process of purchasing a new house at the time that you became and executor of the estate.  Can I assume that in that situation because you are deemed (as far as stamp duty is concerned) to be responsible for two properties that you would be expected to pay the second home stamp duty (£70,000) rather than the standard stamp duty on your own house purchase?

As a slight twist on the same theme.. Suppose the person who has died has a partner who is still living, and like many people they were asset rich and cash poor so they decided (on the advice of the solicitor who created the Will) to put into trust half the house when either one of them died to the benefit of the children (thus reducing or avoiding some inheritance tax).  

In this case the children are over 18 and are thinking of purchasing a property... the first parent has died and the Will states that they now own half the house..  is it the case that if they were planning to purchase a home of there own that the stamp duty that they would have to pay would be the second home stamp duty (£70,000) because they are deemed to own half the parents property after the first parent has died?

Keep_pedalling

No, the executor does not personally own the property so has no impact on their personal taxation.

SDLT_Geek

peteasa said:

I have a question that might effect many people when they are acting as executor for the estate of a person who has died.

As executor you are a trustee for the estate including any property that was owned.  You can for example as executor invest any money during the duration process of winding up the estate so that the estate does not loose out.  So you have quite a bit of control over the estate.

As a trustee under tax law you are deemed to be the owner as far as stamp duty is concerned of the house held in trust.
I agree with @Keep_pedalling on this.

Suppose you just happen to be in the process of purchasing a new house at the time that you became and executor of the estate.  Can I assume that in that situation because you are deemed (as far as stamp duty is concerned) to be responsible for two properties that you would be expected to pay the second home stamp duty (£70,000) rather than the standard stamp duty on your own house purchase?
No, not unless a "major interest" had passed personally, such as by assent, appropriation or by the administration of the estate being complete.

As a slight twist on the same theme.. Suppose the person who has died has a partner who is still living, and like many people they were asset rich and cash poor so they decided (on the advice of the solicitor who created the Will) to put into trust half the house when either one of them died to the benefit of the children (thus reducing or avoiding some inheritance tax).  
Often the advice would be for the half share to pass to a trust, with a right for the surviving partner to live in the property for life, with remainder to the children.  Is that the case here?

In this case the children are over 18 and are thinking of purchasing a property... the first parent has died and the Will states that they now own half the house..  is it the case that if they were planning to purchase a home of there own that the stamp duty that they would have to pay would be the second home stamp duty (£70,000) because they are deemed to own half the parents property after the first parent has died?
That depends on a number of factors. 
Is there a life interest as mentioned above?
Has the Will yet been administered, so that the half share has passed as envisaged?

Notes inline above in bold.

peteasa

Keep_pedalling said:

No, the executor does not personally own the property so has no impact on their personal taxation.

Interesting observation... I thought the same until I read about Angela Rayner's very public fall from grace.. in the article that I read it stated

> "owned a property in the stamp duty world…in circumstances where the individual does not own it at all in the real world"

That made me think there must be some loophole somewhere in the legislation - I have not found a reference yet on gov.uk but I am still searching!

I suspect by the language the page I might be searching for is https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09812

peteasa

SDLT_Geek said:

Often the advice would be for the half share to pass to a trust, with a right for the surviving partner to live in the property for life, with remainder to the children.  Is that the case here?

Notes inline above in bold.

In this case there was no such advice given and the Will did not say anything about the surviving partner etc.

SDLT_Geek said:

Has the Will yet been administered, so that the half share has passed as envisaged?

Notes inline above in bold.

In this case the first partner died, the Will was completely administered and the surviving partner lived for a few years.  So my guess is that the beneficiaries would have been deemed to have owned a second home had they decided to move house, and would have been expected to pay the second home Stamp Duty rate.

SDLT_Geek

peteasa said:

SDLT_Geek said:

Often the advice would be for the half share to pass to a trust, with a right for the surviving partner to live in the property for life, with remainder to the children.  Is that the case here?

Notes inline above in bold.

In this case there was no such advice given and the Will did not say anything about the surviving partner etc.

SDLT_Geek said:

Has the Will yet been administered, so that the half share has passed as envisaged?

Notes inline above in bold.

In this case the first partner died, the Will was completely administered and the surviving partner lived for a few years.  So my guess is that the beneficiaries would have been deemed to have owned a second home had they decided to move house, and would have been expected to pay the second home Stamp Duty rate.

It might not be so bad if they were "moving house" in the sense of selling a property they had been living in and buying another property to live in.  For such a person the "replacement" rules might have saved them from the higher rates of SDLT.

The pain would be more likely felt by a beneficiary who had not previously owned a home, but bought one when having an inherited interest.  The three year period of grace (for shares under 50%) might help, or the rule about shares in property worth under £40,000.

RAS

The Angela Rayner situation is completely different to an executor who holds an asset in trust until the estate is distributed.

Or the remaindermen who will in future gain from property being held under an IPDI trust once the second person's estate is finalised.

Her situation is unusual enough that I don't think many here would have encountered it previously.

silvercar

SDLT_Geek said:

peteasa said:

SDLT_Geek said:

Often the advice would be for the half share to pass to a trust, with a right for the surviving partner to live in the property for life, with remainder to the children.  Is that the case here?

Notes inline above in bold.

In this case there was no such advice given and the Will did not say anything about the surviving partner etc.

SDLT_Geek said:

Has the Will yet been administered, so that the half share has passed as envisaged?

Notes inline above in bold.

In this case the first partner died, the Will was completely administered and the surviving partner lived for a few years.  So my guess is that the beneficiaries would have been deemed to have owned a second home had they decided to move house, and would have been expected to pay the second home Stamp Duty rate.

It might not be so bad if they were "moving house" in the sense of selling a property they had been living in and buying another property to live in.  For such a person the "replacement" rules might have saved them from the higher rates of SDLT.

The pain would be more likely felt by a beneficiary who had not previously owned a home, but bought one when having an inherited interest.  The three year period of grace (for shares under 50%) might help, or the rule about shares in property worth under £40,000.

We have continually warned our younger siblings about this. Years ago in-laws, on now out-of-date tax or care costs advice, decided to own their home as tenants in common, with their grandchildren inheriting the half of the home on first death. When the first time buyer SDLT rates and ISAs came in, we warned that this wasn’t a good idea. No one listened. Time’s moved on and in-laws are still with us. Meanwhile my kids have now both bought their own homes, so no future first time buyer issues for them, whereas siblings’ kids haven’t yet bought homes. ….

RAS

silvercar said:

We have continually warned our younger siblings about this. Years ago in-laws, on now out-of-date tax or care costs advice, decided to own their home as tenants in common, with their grandchildren inheriting the half of the home on first death. When the first time buyer SDLT rates and ISAs came in, we warned that this wasn’t a good idea. No one listened. Time’s moved on and in-laws are still with us. Meanwhile my kids have now both bought their own homes, so no future first time buyer issues for them, whereas siblings’ kids haven’t yet bought homes. ….

The younger siblings need to get accurate advice from a lawyer, preferably the one who wrote the will.

If the surviving spouse has the right to live in the house until death or going into care, then this is probably an Immediate Post Death Interest trust. That avoids all the issues with SDLT, CGT, benefits, marital and financial woes for the remaindermen whilst protecting the survivor. 

If it isn't an IPDI trust then the beneficiaries can probably arrange a deed of variation to remedy the situation.

But the survivor needs to register the trust promptly  with HMRC.