First time buyer status a s beneficiary ofa trust?

Hi,

If one is named as one of two beneficiaries of a property placed into a life interest trust, so one of the beneficiary’s (classed as vulnerable) has a home for life, would the other beneficiary lose there first time status as a buyer?

They would like their own home (not part of a trust), and what would be the case if this is bought after the Settlor has passed?

Thankyou

The life tenant is generally considered an owner for SDLT rate purposes so would ordinarily lose first time buyer status and (worse) be treated as buying a second home if they bought another property in their own name in addition to the trust property.

Here, do both beneficiaries have an interest in possession?

Andrew Goodman
Osborne Clarke LLP

1 Like

Hi Andrew, it has been termed a life interest trust, which from a quick Google sounds like an interest in possession. As the other beneficiary, one has no interest in living with the other beneficiary who is classed as vulnerable.

The trust has been advised to be set up in the Settlors life time, so would ones First time buyer status only be lost once the Settlor has passed? Would I have to living in the property to actually lose the status?

My reading of the question leads me to believe that one of the two, A, has rights of occupation and that the other, B, will only become entitled when A’s right of occupation ceases, in other words B would be the remainderman. If that is correct then I would not think that B would lose his status as a first time buyer.

Patrick Moroney

I’m not convinced that for first time buyer relief a life interest is a “major interest”.

However, under FA 2003 Sch 4ZA para 11, the life interest beneficiary is treated as owning the trust property. As a consequence, on purchasing a property to live in the newly acquired property will be an additional property such that the purchase will be subject to the higher rates. In which case, first time buyer relief will not apply.

Presumably, if at the time of the purchase the individual no longer has a life interest then first time buyer relief would seem to apply.

Malcolm Finney

Williams

The position of the settlor is irrelevant here, as is whether you live there.

You need to get some proper advice on this from somebody who understands trusts. It would be odd (but not impossible) for two people to have a right to live in the property at the same time.

Andrew Goodman
Osborne Clarke LLP

I agree with Malcolm: the reason a life interest (or right to occupy) prevents first time buyer relief is that if the life interest exists at the time of purchase it triggers the supplemental 3% charge on additional residential property under FA 2003 Sch 4ZA para 11.