SDLT on a charges to Trustees

We have a client Trustee who would like to instruct us to transfer a property held in the name of Trustees back to the Settlor and then to charge to property in favour of the Trustees instead (as I understand it this is owing to the fact that property value has now exceeded the NRB).Our client is aware of the lifetime IHT issues here but we are worried about the SDLT implications of the transfer and subsequent charge over the property.
We have, in the same week, been instructed to transfer a trust property back to Settlor and charge it in favour of the Trustees in order to allow a Settlor to obtain an equity release mortgage (and therefore the new charge in favour of Trustees would need to be subject to the charge in favour of the equity release mortgagee).
Are charges such as these classed as consideration for the purposes of SDLT? Could anybody please point us in the right direction here?

Lindsay Goodson
Lambert Taylor and Gregory

In both instances, the transaction would appear to be a sale to the settlor, with the proceeds secured by way of the charge. On that basis, SDLT will be payable on the consideration given.

I do wonder, though, if the trustees have properly considered their persona position, especially in the second situation.

In each case, if the settlor has been excluded from benefit the transaction should be an investment decision – have the trustees obtained appropriate advice on the transaction and price to be obtained (and the level of return on the loan so that it may be categorised as “commercial”)?

In the second situation, the trustees are effectively giving up a substantial trust asset for a weak promise. Unless the trust instrument provides otherwise, trustees should only take a first legal charge otherwise they are likely to be in breach of trust and may be liable to compensate the trust fund for any shortfall in the security.

Paul Saunders

So far as SDLT is concerned, it was accepted some time ago by HMRC in one of their bulletins that a property could be transferred, subject to a charge, in such a way that no SDLT would be payable. The matter was considered specifically in connection with the sort of charge often used to constitute a nil-rate band discretionary trust pre-2007 (those were the days!). Critically, the transferee must accept the property subject to an existing charge, and cannot provide any consideration (or accept any personal liability) himself. Query therefore whether that is appropriate in the situation described. In any event, the IHT situation needs very careful examination, in particular the charge is unlikely to be a deductible liability in the settlor’s estate (s. 103 FA 86).

Paul Davies

This is a long-shot, but I don’t suppose you know which bulletin this was?

I’m trying to establish whether SDLT is payable on the assent of properties to residuary beneficiaries from an estate of a widower that owed a loan back to a NRB Discretionary Trust established by his wife’s Will.

We don’t have cash in the estate to pay back the loan, just the properties that the residuary beneficiaries wish to keep.

Helen Dawson

I haven’t been able to find where this guidance was originally published but in any event it appears it is now contained in the SDLT manual.


Paul Davies
Clarke Willmott LLP