I find the impact of beneficial interests for SDLT purposes horribly complicated, given that the legislation is inconsistent in its application for First Time Buyer’s Relief and Additional Property rates. I would like to sense check the following please:
Grandparent has buy to let property that he wishes to place in a discretionary trust for the benefit of his grandchildren. Property will be retained by the trust and rented out as before.
The thought is to create a revocable interest in possession for a grandson. The grandson is 18 and it may be 10 years or so before he wants to buy his first property. The question is what is the grandson’s position, for SDLT purposes, as an I-in-P beneficiary?
In terms of First Time Buyer’s Relief, HMRC confirmed in its correspondence with STEP ( https://www.step.org/system/files/media/files/2023-08/HMRC-STEP.pdf ) that where a beneficiary has an I-in-P in a settlement owning a property this does not preclude them from being a first time buyer.
Am I right in thinking therefore, that the Trustees can create an I-in-P for the grandson, and provided they revoke that I-in-P before the grandson buys his own property, he’ll still qualify for FTB relief?
Giving this a bump. Having looked again, I believe my analysis is correct.
For FTB relief, the I-in-P beneficiary is not treated as a purchaser of the property (as they are not a Trustee), and HMRC has confirmed that this does not ‘preclude’ a claim for FTB relief on a later purchase by the I-in-P.
However, if the I-in-P still exists when the beneficiary buys a property, he’s treated as owning a major interest and therefore, the Additional Property rates would apply, which in turn rules out the FTB relief too.
If the I-in-P is revoked before the beneficiary buys his own property, he has no major interest and the Additional Rates do not apply, which allows him to claim FTB relief.
FTBR is denied where the buyer has ever previously acquired a “major interest” [defined in FA 2003 s117(2)].
“Major interests” exclude life interests and remainder interests for FTBR purposes. Similarly, trustees do not, per se, have a major interest in property.
Thus, those with a life interest are not per se denied FTBR on a purchase but the “higher/additonal” rates would apply and as a consequence FTBR would denied.
I have an interesting case which I tag on to this discussion because the issues overlap. Trustees of a Discretionary Trust purchased a property funded, in part, by a loan from two beneficiaries, who were then granted a revocable interest in possession enabling them to live in the property and receive the rental income. The Trustees now wish to appoint the property out to the beneficiaries absolutely. Because of the loan, secured on the property, they are treated as giving consideration for the transfer. Are they eligible for FTBR or subject to additional rates? My analysis would be “yes” and “no” respectively because Condition C in Schedule 4(ZA) does not apply, because they do not have an interest in a dwelling “other than” the purchased dwelling because it is the same dwelling we are talking about, but would be reassured if others agree.