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Where Taxpayers and Advisers Meet

SDLT and bare ownership in Italy

sylph83
Posts: 4
Joined: Tue Sep 04, 2018 5:19 pm

SDLT and bare ownership in Italy

Postby sylph83 » Tue Sep 04, 2018 5:28 pm

Hello, I am about to purchase my first house in the UK. After informing my solicitor that I have the bare ownership of a house in Italy (donated to me), to which my grandfather has the usufruct, she insists that I have to pay the higher rate SDLT. I think it's absurd as I don't have the right to live or rent the other property. They told me that if I want a normal rate then I have to provide written evidence from a "tax expert". After contacting a group of Italian Accountants in the UK, they told me that's 100% a solicitors job, and they have nothing to to do with it. Who am I supposed to contact to prove that the bare ownership should not trigger the additional 3% taxation?
Thanks for your help.

maths
Posts: 7450
Joined: Wed Aug 06, 2008 3:25 pm

Re: SDLT and bare ownership in Italy

Postby maths » Tue Sep 04, 2018 7:56 pm

FA 2003 Sch 4ZA para 16(2)(a) specifically provides that references to "major interest" in a dwelling are to an equivalent interest in a dwelling under the law of that country or territory.

Sch 4ZA para 11 provides that where a person is a beneficiary under a settlement and the beneficiary is entitled to occupy the dwelling for life then the beneficiary (not the trustee) is to be treated as holding the interest in the dwelling.
In such a case the beneficiary will have an interest in possession.

HMRC have confirmed (albeit for IHT) that in principle it will usually treat a usufruct (the right to use and enjoy another's property) as an interest in possession trust for inheritance tax (IHT) purposes. There is no reason to believe they would adopt a different approach for SDLT.

Accordingly, as you are not the interest in possession beneficiary under the Italian usufruct you are not treated as having a major interest in the Italian property.

Hence, no 3% SDLT charge.


Unless the solicitor is able to produce a cogent counter argument to the contrary he/she has no grounds for forcing you to incur the additional 3% charge. A suggestion from him/her that you could pay the 3% and then reclaim if appropriate is not a satisfactory response. A confirmation from you in writing as to the nature of your position re the Italian property together with the above argument should be sufficient to cover their "backside" which is in effect what they are worried about.

sylph83
Posts: 4
Joined: Tue Sep 04, 2018 5:19 pm

Re: SDLT and bare ownership in Italy

Postby sylph83 » Tue Sep 04, 2018 9:17 pm

Thank you very much Maths. I'm going to quote what you said to my solicitor. If they are going to ask for more substantial are you willing to provide them with this evidence yourself, as I imagine you're a professional? Contact me in private if so, of course I can provide compensation if needed.

sylph83
Posts: 4
Joined: Tue Sep 04, 2018 5:19 pm

Re: SDLT and bare ownership in Italy

Postby sylph83 » Fri Sep 07, 2018 11:01 am

Unless the solicitor is able to produce a cogent counter argument to the contrary he/she has no grounds for forcing you to incur the additional 3% charge. A suggestion from him/her that you could pay the 3% and then reclaim if appropriate is not a satisfactory response. A confirmation from you in writing as to the nature of your position re the Italian property together with the above argument should be sufficient to cover their "backside" which is in effect what they are worried about.
My solicitor is indeed insisting that I'm wrong about the SDLT.
This was their answer:

"I refer to previous correspondence in connection with the Stamp Duty Land Tax payable in your purchase of the above property.

You have indicated that you are the bare-owner of a property in Siena, Italy, the value of which is around £200,000 and that the usufruct owner lives in the property. I understand that under Italian law you would have to prove the property was purchased using your own money in order to avoid paying Inheritance Tax. This firm has not come across a usufruct arrangement before (nor would we ordinarily expect to do so as conveyancers in England and Wales) but it appears from what you tell me that you may have a major interest in another property for the purposes of SDLT. The analogy to a ‘bare trust’ is perhaps too simplistic as a ‘bare trustee’ in English law has no interest whatsoever in the proceeds of sale. The information provided indicates that whilst the usufruct owner has the right to live in the property, you would be entitled to some of the proceeds if it was sold in the future. I may have misunderstood your interest in the Italian property and the Italian law and, if so, please let me know.

Stamp Duty Land Tax is a self-assessment tax payable when a property is purchased in this country. There is an obligation to pay an additional higher rate of tax if the person buying the property has an interest in another property in the United Kingdom or anywhere else in the world.

You are of the opinion that the extra Stamp Duty Land Tax will not be payable. From the information provided we question whether this is correct but we are not tax experts and have advised you to seek specialist advice. I am acting as your Agent and it will be necessary for me to submit assessment to HM Revenue & Customs. As this is a self-assessment tax you will be liable for any incorrect statements made to HMRC.

In the circumstances you can either obtain professional advice from a tax adviser or solicitor specialising in Stamp Duty Land Tax payments and provide a copy of their findings to us. Alternatively, if you are relying on you accountant’s advice to date that you are not liable to pay higher rates of SDLT, you can sign a Declaration and Indemnity agreeing to reimburse Emsleys Solicitors if we are penalised for any inaccurate statements made to HMRC."

AGoodman
Posts: 612
Joined: Fri May 16, 2014 3:47 pm

Re: SDLT and bare ownership in Italy

Postby AGoodman » Fri Sep 07, 2018 11:31 am

Did he or you make the first reference to "bare trust" as that is indeed a bad analogy (and a very different concept to "bare ownership" which is analogous to a "reversionary beneficiary" under English law)?

The correct analogy - as referred to by maths - is an interest in possession trust where your grandfather has the right to occupy for life under Sch 4ZA para 11(1) and so is treated as the owner under para 11(3).

This is not a bare trust and para 11(2) [which refers to bare trusts] would not apply.

It is understandable that somebody specialising in property would not be an expert in the finer points of SDLT and HMRC treatment of usufructs. If you can't make progress then a short advice letter from a tax adviser is definitely the way to go.

sylph83
Posts: 4
Joined: Tue Sep 04, 2018 5:19 pm

Re: SDLT and bare ownership in Italy

Postby sylph83 » Fri Sep 07, 2018 11:48 am

Did he or you make the first reference to "bare trust" as that is indeed a bad analogy (and a very different concept to "bare ownership" which is analogous to a "reversionary beneficiary" under English law)?
I never referenced a "bare trust". I tried to explain my position at the best of my English skills, and I then copy and pasted what Maths said.

If any of the experts on this forum is willing to write said advice letter to my solicitor, please let me know.


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