SDLT Stamp Duty Query

[anneclarke]

SDLT Stamp Duty Query.

Dear Sirs,
Please can you confirm if there will be any liability to SDLT in the following scenario, bearing in mind these guidance notes:-

A mortgage taken out at the same time as the purchase of a property is not the assumption of responsibility for a debt owed by the vendor (seller) of the property.

Note: a gift of an interest in land does not itself constitute a chargeable transaction for stamp duty land tax.

Scenario:-
A residential property (only and main residence) was gifted to a Trust by a mother for her four children, who are the beneficiaries and the trustees in equal shares (25% each).

Years later the Trustees of the Trust want to transfer the trust property from the mother's name (as one of the trustees) to one of the children and a trustee, to continue holding the property in trust for all of the four children under the Trust, in equal shares (25% each).

No money will change hands and there are no plans to sell the property at any time.

The beneficiary will not assume any debt of the existing mortgage on the trust property.

The beneficiary will have no responsibility for the existing debt.

The beneficiary will not covenant to repay the existing debt.

The beneficiary will give no indemnity for the existing debt.

The Settlor (mother) will be responsible for repaying the existing mortgage debt.

The beneficiary will raise his own mortgage on the property.

The beneficiary, of his own freewill, will gift some of the money to be raised on his mortgage to the Settlor.

The Settlor will use the gifted money from the beneficiary to repay the original mortgage.

Is the gifted money from the beneficiary to the Trustee / settlor / mother a transaction for SDLT?

Thank you for your help.
Anne Clarke

[section 44]

Some clarification is required.

Years later the Trustees of the Trust want to transfer the trust property from the mother's name (as one of the trustees) to one of the children and a trustee, to continue holding the property in trust for all of the four children under the Trust, in equal shares (25% each).

What you have described here is merely a transfer of bare legal title (no value). Simply transferring bare legal title jointly to one of the children would not pass any value to him. Presumably the child would be a joint legal owner either as a trustee or a nominee for the trustees.

What type of trust is it? Presumably not a bare trust so for SDLT purposes the property is held by the trustees.

How is the beneficiary under the trust going to raise a mortgage on a property in respect of which he isn't a beneficial owner? This again ties-in with a need to clarify what type of trust it is.

Aside from clarifying the above, section 75A could be a problem here.

[anneclarke]

To try and clarify

The mother’s name is still on the land registry title as trustee years after the Bare Trust was created to hold the gifted property in trust in equal shares for her four children. The mother was holding the property as a trustee of the trust and all four of the children were the beneficial owners 25% each. The mother is fairly sure it is a Bare Trust and positive that she was no longer the owner of the property.

The problem is the one you have highlighted. One of the children / beneficial owner / trustee, with agreement from the other three beneficial owners / trustees, wants to raise a mortgage on the property and continue as a trustee holding it in trust for all four of them equally. However, in order to raise a mortgage on the trust property that one beneficial owner’s name has to be on the title deed.

Assuming this can be done some way with the consent of the other three beneficial owners and using a solicitor and ensuring the property is held in trust (as before) for all four equally, then would the gifted money from the beneficiary to the Trustee / settlor / mother be a transaction for SDLT?

Thank you for your help.
Anne Clarke

[section 44]

If I have understood the facts correctly, the children acquired their respective beneficial interest in the property when the trust was settled - that's the transaction for SDLT purposes. Provided that the trust was settled pre 1 December 2003 it should technically be outside the scope of SDLT. The transfer of bare legal title should be worthless.

If the facts aren't quite as you have described/I have understood (in particular if the trust was declared later) then there may be a transaction within the scope of SDLT.

Does the timing of what you have described work? As described there would (at one point) be two mortgages on the property after the beneficiary has obtained his mortgage but prior to the mother discharging hers. Would the beneficiary's lender be happy with only having a 2nd legal mortgage pending discharge of the mother's mortgage?

[anneclarke]

To clarify further

Yes, the children received their beneficial interest when the Trust was created and settled in 2005 but the property was gifted to them equally so is that a transaction for SDLT? No money has changed hands and no sale of the property will take place.

You are right. It will be unlikely that any lender will provide the mortgage unless it is on a first charge basis, in which case the original mortgage would have to be paid off beforehand or at the same time.

In that event, would there be a transaction within the scope of SDLT and if so how and to what extent please?

I am grateful for your time and trouble.
Anne Clarke

[section 44]

When the trust was created in 2005 there was an acquisition of a chargeable interest, and hence a land transaction, for SDLT purposes in respect of the beneficiaries' interests. However, as it was a gift, no SDLT liability arises.

Strictly, what is now proposed is no more than a transfer of bare legal title (the beneficial interest having passed in 2005) and so no SDLT liability should arise.

The risks are:

1. evidentially, can this all be supported (?); and

2. if HMRC were so minded they could try and attribute the mortgage arrangements to the transfer of legal title which (whilst worthless a bare legal title is nevertheless a chargeable interest for SDLT purposes). The way to minimise this risk would be to make sure that there is no link between the beneficiary's mortgage and the settlor's mortgage. Practically, there should be another source of funding to enable the settlor to discharge her mortgage first.

You can't rule out the risk but there's a "filing position" that no SDLT liability arises although technically no SDLT return is due so whilst I refer to a "filing poisition" no filing would be made. Without additional disclosure to HMRC the risk would be that HMRC could issue a discovery assessment for up to 21 years.