SDLT when trust and beneficiary buy property

[strawn]

A and B buy a flat as tenants in common, one third to A, two thirds to B. B is a discretionary trust, A is a beneficiary of the trust (but not a trustee nor the settlor). The flat cost, say, £369k. Am I right in understanding that the stamp duty will be 3%?

Many years after the purchase A can unexpectedly afford to buy half of B's share - for simplicity we'll assume that that half is still valued at £123k. Is there stamp duty to pay on that purchase? If, once again, many years after that further purchase A can unexpectedly afford to buy the remainder of B's share (still valued at £123k), is there stamp duty to pay?

B funded the original acquisition with its own funds, A partly with a loan from family members which he will have cleared before he begins to buy out B, those family members also being beneficiaries of the trust.

[AvocadoK]

Are A and B related to each other? If so, how?

[strawn]

As it says, A is a person, B is a trust, A is a beneficiary of the trust.

[AvocadoK]

Sorry, so it did. I should have asked, is the beneficiary connected with the settlor?

[strawn]

Good question: I should have said. Settlor: the trust was set up by one of the beneficiary's parents doing a deed of variation on the will of the beneficiary's last grandparent. Moreover, the trustees are the beneficiary's parents.

[AvocadoK]

Thanks for the info.

There is a linked transaction for SDLT purposes where two connected persons acquire interests in the same property as part of a series of transactions or arrangement.

In this case, the two parties (the trustees and the beneficiary) are connected. The logic is that the trustees, in their capacity as trustees, are connected with the settlor (by virtue of s1122 et seq CTA 2010), and with anyone connected with the settlor. The beneficiary is connected with the settlor because he is a lineal descendant). So the trustees and the beneficiary are, in this case, connected. (Arguably the parents are settlors in any event because of the deed of variation, but this point is academic I think).

The linked transaction rule means that the SDLT threshold to be used is based on the combined consideration, £369k. So the short answer is that 3% is indeed the correct rate.

On the second transaction, A will indeed incur SDLT on the purchase from the trustees, at the rate prevailing at that future date. No SDLT would be payable if the trust appointed the share of the asset to the beneficiary for nil consideration.

AK

[strawn]

Many thanks. Let us for simplicity pretend that SDLT thresholds and rates won't change: you tell me that even though the £123k is below the SDLT threshold there would be SDLT to pay. Would that be at the same 3% rate as the original payment?

[AvocadoK]

SDLT would only be payable if the amount paid exceeded the nil rate band. As you say, £123k is less than the current nil rate band, so no SDLT would be payable on £123k. If, say, £130k was paid, SDLT would be payable at 1%. It would not be a linked transaction, given that at this stage there is no arrangement to buy the interest in the property.
AK

[section 44]

It would not be a linked transaction, given that at this stage there is no arrangement to buy the interest in the property.
AK

Perhaps but the law is borader than that (my emphasis).

Section 108 FA 2003 "... single scheme, arrangement or series ..."

There doesn't need to be any arrangement.

[AvocadoK]

Well, OK, but where there is nothing more than a possibility that the beneficiary might buy at a later stage, it would not be a linked transaction. In the OP, it is clear that there is no expectation of the purchase occurring.