Discretionary Trust and Stamp duty

Mrs A owned a property. She transferred it into a discretionary trust, beneficiaries herself and children. In 2017 she agreed to sell property to one of her daughters and purchase a new property with the sale proceeds. The sale proceeds were transferred to the purchase file and the new property was purchased in the name of the same 4 trustees, although a new trust document the same as the previous was prepared by Mrs A, the same day as the transfer to the four trustees.

I believe the intention was to effectively appoint the sale proceeds to Mrs A, for her to purchase the new property and then immediately transfer it into the new trust to avoid the additional rate stamp duty. The property was purchased for £180,000 so stamp duty was paid but not the additional. I am not sure this has worked, it appears to me that the Trustees of the original trust purchased the new property within that original trust and were therefore liable for the additional stamp duty. Is this the case and if so is there anything that can be done to amend the position? The balance of the sale proceeds were paid to Mrs A but there is no documentation to support her purchasing the new property in her sole name, nor is there a transfer to that effect.

Paul Mounce

“The new property was purchased in the name of the same 4 trustees”. What did the form TR1 say about beneficial ownership? If it said they were purchasing as trustees then I would say that is determinative of the matter.

Paul Davies
Clarke Willmott

I suspect this will be caught by the SDLT anti-avoidance rules.

It also looks as though it will be caught by the IHT anti-avoidance rules, whether applying associated transactions or the principle in Furniss v. Dawson. Having said that, HMRC might be able to put a bigger shovel in the client’s estate if the parties allege a new settlement was made when the new property was sold. Unless Mrs A had an interest in possession in the property at the time of the sale, HMRC might deny CGT private residence relief.

I hope that whoever recommended the arrangement has appropriately documented the process to be adopted, if only due to any potential “comeback” if the steps were not complied with in the execution of the arrangement.

Paul Saunders