Where an estate is to be divided between two beneficiaries A and B in equal shares and the estates consists of, say, a property worth £200,000 and cash residue of £100,000, would SDLT be chargeable if A and B enter into a Deed of Variation by which A receives the property charged with a payment of £50,000 to B, and B receives the residue?
I am looking at Sched 3, para 4 FA 2003 which provides an exemption for DoVs so long as “no consideration in money or money’s worth other than the making of a variation of another such disposition is given for it.” At SDLTM00560 this is followed by “N.B. consideration here does not include any secured debt assumed.”
Will this legacy charged on the property be considered external consideration? It is not the assumption of “existing debt” by A (Sched 4, para 8). After all, if the property were sold the beneficiaries would still receive an equal amount of cash from the estate.
Would a DoV even be required or make any difference to the outcome? A and B are still receiving equal value under this arrangement so, as long as both beneficiaries are in agreement, the executors could transfer the property to A subject to the debt to B without needing to amend the Will.
I have previously seen similar arrangements criticised as the property holding charity could be denied CGT exemption on the basis that the proceeds of sale cannot applied exclusively for the purposes of the charity’s charitable purposes, as some are to be applied in the discharge of debt to a third party. The fact that the third party is also a charity has not avoided the concerns.
I believe the concerns would be the same whether the arrangement is put in place by way of appropriation subject to the debt, or by a variation. Consideration might be given to obtaining an opinion from counsel, which could be presented to HMRC should it seek to query any claim for relief.
I believe the solution in your final paragraph is absolutely fine, so long as B is comfortable with the terms of the charge which would certainly require some care in drafting. Some interesting commercial discussions would be needed to establish the interest rate and repayment terms.
I would have thought that SDLT is payable under FA 2003 Sch 3 para 3A(2) and (3); the debt (secured) only being treated as non external consideration if it subsisted on the death of the deceased (Sch 3 para 3A(4)).