I’m not sure if this question has been raised in the forum before, as I could not find it. I have a case where recently new trustees have been appointed for a will trust where the daughter of the deceased was given a life interest and after her death 3/10 Share of the trust, fund, the sole asset being a residence, is shared equally by her three sons and the remaining 7/10 share passes to her estate. The trustees are the daughter and two of her children. I have been asked if either of the two trustee sons were to purchase a residence would they be liable to pay the higher rate of LTT? As they have reversionary interests rather than absolute ones, I wonder if this would not render them liable to the higher rate. I assume the same rules would apply for SDLT.
I have been trawling through STLT regulations and I’ve come across SDLTM09785 wherein it states:-
“Where an individual is one of the legal owners of another dwelling (their name is on the title at the Land Registry) but they have absolutely no beneficial interest in that other dwelling, they will not own an interest in that other dwelling that meets Condition C. This would have to be evidenced in writing. Any entitlement to capital proceeds from the sale of the property, to income or to occupy the property would likely mean that they do have a beneficial interest”
Would contributors agree that the two son trustees in my question DO NOT, whilst the life tenant is alive, have a Beneficial interest in the dwelling?
SDLTM09785 is total gobbledygook and not even a moderately intelligent paraphrase of Condition C.
A major interest is defined in s117 and does not include ANY interest of a beneficiary under a settlement as defined in Sch 16. Such an interest is however a chargeable interest under s48 so can be the subject of a land transaction: SDLTM00280 (a model of clarity).
The exception is that the life tenant of a settlement which owns a major interest is treated as the vendor of it for the limited purpose of being regarded artificially as the purchaser instead of the actual purchaser who is a minor child of the life tenant: paras 11 and 12 Sch 4ZA.
Jack Harper
Thank you, Jack for pointing me to SDLT0280, which makes it clear from the extract below that a trustee with a reversionary interest in a residence would be liable to pay the higher rate of that tax on purchasing a residence for themselves:-
Chargeable interests include:
- an equitable or beneficial interest in land such as a life interest or an interest in reversion or in remainder.
Sorry, Patrick, I was not clear enough. Although a trust interest in land as described in 02800 is a chargeable interest it is not a major interest. It can be the subject of a land transaction for chargeable consideration but only at standard rates. It is not a major interest therefore for Condition C in para 3(4) Sch 4ZA so if a beneficiary of a trust of land acquires a separate dwelling it will not be a higher rate transaction.
The opposite is true for a beneficiary of a bare trust. This follows from the general structural distinction in paras 1, 3, and 4 Sch 16 which treats the trustees of a settlement as the acquirers of a major interest that is trust property but the beneficiary as the acquirer of a major interest held on a bare trust.
Jack Harper