I would appreciate views on the SDLT position in the following scenario.
A husband and wife created a lifetime family trust over their main residence. It is an interest‑in‑possession trust in favour of themselves during their lifetimes. Both have now passed away (the wife died second, in July 2024).
Under the default clause of the trust, the property is to be distributed equally amongst their children though the trustee has discretion on how to appoint the capital and income of the trust fund after life tenants’ deaths.
However, their Wills direct that the deceaseds’ beneficial interests in the same property should be divided 50% to the daughter and 50% split equally between the sons.
After the parents’ deaths, the daughter paid the sons to reflect the shares given under the Wills, and she then moved into the property as her main residence. The trustees now wish to appoint the property out of the trust to the daughter.
I am trying to determine the SDLT outcome of that appointment. I have seen two possible analyses:
SDLT is payable
Because the trustees are exercising a power of appointment in favour of the daughter (who is also a trustee), and she has made payments to the other beneficiaries, those payments may constitute chargeable consideration. On this view, she is effectively buying out their beneficial interests.
SDLT is not payable
Alternatively, it could be argued that the daughter was compensating her siblings after receiving the trust assets, rather than purchasing their beneficial interests. Under this interpretation, the payments are not “consideration” for SDLT.
My questions for the forum is:
If the trustees appoint the property to the daughter now, following the earlier payments to the sons, does that constitute chargeable consideration for SDLT purposes?
Any insight into how HMRC are likely to view these payments would be extremely helpful. Based on my reading of SDLTM31760, it sounds like the exercise of power of appointment following the payment is chargeable consideration for SDLT purposes!
Crucial point missing: the identity of the trustees.
If the daughter had paid the trustees directly to secure their appointment in her favour SDLT would be payable. Trustees of land have a chargeable interest if they have a power of appointment over it: s.48(1)(a) FA 2003. So exercise is a land transaction.
The problem here is s.75A which is intended to collapse a series of operations into a single notional i.e. fictional transaction. Here that would equate to the non-existent direct transaction between the trustees and the daughter. See SDLTM09050 onwards. This is better described as an anti-tax saving measure rather than anti-avoidance because the intentions of parties are irrelevant.
This is the most draconian anti-taxpayer measure in the armoury of the Government and HMRC because it is statutory and permits the arbitrary re-characterisation of reality. In effect Parliament was induced to enact the divine revelation vouchsafed to the judiciary in 1979 (suspicion abounds that it was conveyed to them by those who consider themselves God’s earthly representative—HMTreasury). It goes further than the Ramsay judicial legislation role claimed by judges under cover of purposive or contextual construction. The judges only purport to guess at what Parliament might have intended if it had thought about the issue at all (which pre-supposes it possesses rational thought—the evidence is not unequivocal or encouraging). The judges do not lay claim to omnipotence or infallibility unlike the Treasury who have apparently received by theoria the gift of theosis or at least apotheosis).
In theory there is a non-statutory clearance facility at 09080 but, subject to judicial review, HMRC
may or may not condescend to assist. As they will hold in reserve the right to change their mind, by subsequently asserting material failure to disclose, an application must virtually play Devil’s advocate and disclose the detailed breakfast menus of all participants. A reading of the obtuse Stasi-esque giveaway at 09070 should tell you all you need to know about the prospects of success.