Stamp Duty Land Tax - Equitable Interest

Trusts Discussion
1

A property (the “Property”) was purchased by six siblings namely, A, B, C, D,E, and F, for the sum of £182,500 in order to provide A with a home. As the legal estate can only be vested in four names, the property was registered in the names of A, B, C and D. A Declaration of Trust was entered into stated that whilst A remained alive and in occupation of the property as his residence, provided he maintained the property and paid all the outgoing, he could reside in the property rent free and it could not be sold without his consent. Subject to A’s right of occupation, the property was owned by A,B, C, D, E, and F in equal shares.
F died in December 2019. Although F has a surviving husband, she does not have any children. AB,C,D,E, and F’s husband are concerned, for A’s protection, to ensure that the property does not pass outside the family. Consequently, F’s husband has agreed to enter into a Deed of Variation of F’s estate so that subject to the payment of a £6,500 from F’s share of the Property , her share and interest is left to A,B,C,D, and E in equal shares.

Please note that the value of the estate of F and her husband will not exceed the inheritance tax threshold, so there are no inheritance tax issues.
The parties are concerned as to whether stamp duty land tax is payable on the above transaction and if so how the tax is calculated. The current value of the land is approximately £300,000.

Therefore, without taking into account the interest in possession, or the co-ownership of it a one sixth share would be worth £50,000.

Questions

The poster would be grateful for any advice on what basis (if any) SDLT would be calculated. In particular:-

  1. Is SDLT only assessable on A as the person with the lifetime right of occupation, and the transaction not subject to SDLT?
  2. Is SDLT payable on 1/6th of the current £300,000 value (i.e. £50,000) ? And if so, on what basis?
  3. As the transaction is set out in a Deed of Variation is there no consideration paid and therefore not SDLT assessable?
  4. If SDLT is assessable, is it assessed on:-
    (i) The sum of £6,500 (the remaining value of the 1/6th share being exempt as a gift)?
    (ii) The sum of £50,000 less a deduction to take into account the prior life interest?
    (iii) The sum of £50,000 less a deduction to take into account the joint ownership (i.e. the relatively unmarketable existence of a 1/6th share)?
    (iv) The sum of £50,000 less a deduction to take into account both the prior life interest and the joint ownership?

Ian Partington
Horwood and James

2

Can you explain what this means? Where is the £6,500 coming from and does it amount to consideration that would prevent the deed of variation qualifying under s.142?

At worst, it sounds as though SDLT would be payable on £6,500 (SDLT is paid on consideration) but it isn’t clear from the description who the buyer is. It could be the trustees (qua trustees) or the other 5 siblings in which case they are likely to be liable to £6,500 * 3% / 5 = £39 each (it could be zero as they are buying a property in which they already have an interest).

Andrew Goodman
Osborne Clarke LLP

3

  1. As there is external consideration, s142 will not read back the DOV for IHT.

  2. If IHT is not an issue for F and his widower, it would be simpler just to have an equitable assignment selling F’s 1/6 share for £6,500.

  3. If you do 2, SDLT is assessed on the £6,500, not the market value, as there is no SDLT on any gift element, so no SDLT.

  4. Clearly, F (and I suppose the other owners-who could be represented by one firm jointly) will need separate independent advice, and there would need to be a valuation of the share taking account of the joint ownership discount (15% I would suggest) and
    the life interest.

Simon Northcott

4

If F‘s husband varies the dispositions of F’s estate so that F’s entitlement to a share in the property is gifted to A, B, C, D and E subject to a “legacy” of £6,500 payable out of that property interest, the variation will be valid under s.142 IHTA 1984 (provided it is made within the 2 year window).

As the cash gift is made within the same instrument, it is not consideration for the purposes of s.142(3) IHTA 1984.

Under such an arrangement, no liability to SDLT arises.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

5

I would be concerned if the intention was for the others to pay the £6500 out of their own money. It would then be external consideration, with the deed trying to dress it up as something else.

Simon Northcott

6

With regard to Simon’s post, I have come across such arrangement a number of times, and am not aware of HMRC having raised any queries.

The consideration is being given within the variation itself – the payments are merely the discharge of a liability, enabling those enticed to the property under the variation obtaining title unencumbered by the debt. The debt could, of course, be left outstanding until such time as the property is sold.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals