No special deeming rules apply to deeds of variation for SDLT, and so it is simply a gift from the grandchildren (who presumably are of age) to their aunts and uncles. It therefore makes no difference whether it is a gift or a deed of variation.
I think the key question is whether the estate has been ascertained. If not, then the children simply have a right to proper administration of the estate, which may require the sale of the property to meet liabilities prior to transfer to them. They do not have a property interest.
Once the estate has been ascertained and the Executors know (if this is the case) they have sufficient assets to be able to meet the specific legacies in full, at that stage the beneficiaries could demand the transfer of the property. For SDLT purposes this beneficial interest would appear to be rights over property for SDLT purposes, and hence mean first time buyer relief is lost.
If the estate has been settled but the property has not been assented, HMRC would have a very strong argument that the rights of the beneficiary have become rights over a residential property for SDLT purposes, regardless of the date entered on the actual assent. It would be a brave taxpayer who files on the basis of an assent having been prepared but not quite signed.
I fully agree with Stuart’s thorough analysis on this point.
A related point, where there also seems to be a difference between the rules on FTB and on the extra 3% SDLT charge (schedules 6ZA and 4ZA just to help confuse us all) is on life interest trusts.
It is clear that, under 4ZA, a beneficiary of a life interest trust which owns residential property, where the beneficiary’s interest is worth more than the £40K de minimis, is treated as owning residential property, so will pay the extra 3% SDLT unless replacing their main residence.
But, as far as I can see, under 6ZA, an interest in a trust of this kind only affects the beneficiary’s ability to claim first time buyer’s relief if it still exists and therefore there is a 4ZA (extra 3%) charge. If the trust interest, or the life interest, has ended, it seems that the former beneficiary can still be a first-time buyer. Do others agree?
First time buyer means that an individual “has not previously been a purchaser in relation to a land transaction the main subject matter of which was a major interest in a dwelling” [FA 2003 Sch.6ZA para 6(1)(a)].
Major interest refers to a freehold or leasehold interest (of 21years or more) whether legal or equitable [FA 2003 s.117 and Sch.6ZA para 8]
Prior to ascertainment of residue (ie during the period of administration) a legatee simply holds a chose in action and thus at that time does not for SDLT hold a major interest in any dwelling. However, once an asset has been vested in a legatee then a major interest has been acquired; vesting of a beneficial interest in land requires an assent which may be made without writing (eg orally).
Under mother’s will the two grand-children are entitled to a major interest in the property and thus as and when their interest vests they will no longer thereafter be entitled to first time buyer relief. My understanding is that the execution of a DoV enables the grandchildren to redirect by gift their acquired major interest which is not possible until that interest has been acquired; hence, first time buyer relief would still not be available thereafter.
Can it not be argued that the deed of variation is a gift of a chose in action, as it often is eg when a residuary beneficiary gifts all or part of his entitlement to residue during the course of administration
of an estate? However, such for a specific gift to be a gift of a chose in action, it would have to be at a very early stage of a very uncertain estate, as otherwise there would be no uncertainty as to the vesting of the property in the beneficiary.
Sch 6ZA para 1(7) provides that first time buyer relief cannot be claimed if the transaction is a higher rate transaction under Sch 4ZA para 1. A higher rate transaction is one where, inter alia, on the effective date (ie completion) the purchaser has a major interest in another dwelling. If therefore at the time of a purchase of a dwelling the life interest beneficiary no longer has a life interest in trust owned property (or any other property) the purchase will not constitute a higher rate transaction.
Sch.6ZA para 1(4) also requires the purchaser to be a first time buyer which is defined in para 6(1)(a) which requires that the buyer must have not previously been a purchaser of a major interest. The fact that the purchaser was previously a life tenant of trust property does not constitute a purchaser of a previous major interest for first time buyer relief, only for ascertaining if the transaction is a higher rate transaction.
Per Simon Northcott, at a very early stage, or alternatively perhaps if there is uncertainty as to the level of inheritance tax that may arise due to reliance on reliefs and HMRC interpretation.
I recall HMRC has previously accepted that a disclaimer can validly be followed by a variation under s.142 IHTA.
If this is still understood to be the case, who would benefit if the grandchildren disclaimed their entitlement? If the daughter, she could then enter into a variation in favour of her siblings.
Provided the grandchildren receive no benefit, s.143(3) IHTA should not nullify the arrangement for IHT purposes.
This is an interesting point - (to play devils advocate) to disclaim however you would need to have benefitted at some point though which would then mean a loss to the first time buyer’s relief?
Would it be correct that for the FTBR to SDLT a disclaimer would be sufficient?
If so, this would be perfect as the mother would inherit and she could vary the estate from her side.
Christina is not quite correct when she says “you would need to have benefitted at some point though”.
In fact it’s quite the reverse. A disclaimer means that the original beneficiary is treated as if the property had never been conferred on that beneficiary ab initio. In which case first time buyer relief would seem to apply (as Sch 6ZA para 6(1)(a) would be satisfied).
Given the nature of a disclaimer it would then follow that a DoV could be combined with the disclaimer which as Paul indicates seems to be accepted by HMRC.
The definition of first time buyer in the Finance Act includes a person who:
(a)has not previously been a purchaser
in relation to a land transaction
the main subject-matter of which
was a major interest in a dwelling,
(b) has
not previously acquired an equivalent interest in a dwelling
situated in a country or territory outside England ,
Wales and Northern Ireland,
Therefore why does hmrc guidance say it is a person who has not previously purchased OR ACQUIRED a major interest in a dwelling anywhere in the world? Acquisition only applies to dwellings outside England; inside England
requires a purchase, which an inheritance is not.
So does this mean inheritance does not count for FTBR? It would appear so, provided when the person buys a house he has disposed of the one he inherited.
With regard to Christina’s comment on the need to benefit, whilst a
beneficiary must accept the gift to be able to vary it’s destination
using an instrument of variation, the acceptance of benefit is fatal to
an attempt to disclaim.
For SDLT purposes I don’t think anything turns on the use of “purchaser” versus “acquired” in Sch 6ZA para 6(1)(a) and (b) whilst appreciating there is, in normal parlance, a difference.
FA 2003 s.43(4) defines purchaser as a person “who acquires” a chargeable interest (acquisition is defined in s.43(3)). Thus, a purchaser is not necessarily a person who pays for or provides consideration (in normal parlance).
Sch 6ZA para 1(4) refers to “…the purchaser…is a first time buyer…”.
Have you ever owned or part owned another property?
We only need to know about residential property, or property that has both residential and non-residential use. This includes freehold property, or leasehold property of at least 21 years. Select yes if you either:
bought a property inherited a property
are a beneficiary of a trust that owns a property
This is ridiculous. The parliamentary draftsman has redefined various English-language words in common parlance to mean something completely different, eg “In this Part “dog” means “cat””. Then HMRC latches on to this and asks a taxpayer whether he owns a cat, and when he says no, they say, “of course we also want to know about dogs”.
I think we have to accept that “Purchaser” means someone who inherits land (“in relation to a land transaction”), or is given it (no consideration is necessary) or acquires it in any way.
Do we all concur that first time buyer relief is only lost where the property is left as a specific gift, and not where the property forms part of the Residuary Estate?
Taking Emma’s point one step further, how does having a Reversionary Interest in a property affect things? I am at total variance with our Residential Conveyancing Department on this point
s48 of the Act says “In this Part “chargeable interest” means (a) an estate, interest, right or power in or over land in the United Kingdom, or (b)the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power, other than an exempt interest.”
It seems to me that a reversionary interest is an interest in land, and therefore FTBR is lost to any reversioner.
I just wanted to confirm that I sought advice from a Property tax specialist who, to my surprise, confirmed that a DoV would negate the issue of loss of FTBR to SDLT. She said a DoV would be best first if possible and then a DoV but has said this will be sufficient.