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Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, outlines areas of uncertainty for SDLT purposes in connection with Wills and Trusts

Context

Conflating a number of sections of FA 2003, a liability to SDLT will arise for the purchaser of a chargeable interest who pays chargeable consideration in excess of the nil-rate threshold. A beneficiary (pure and simple) under a Will or a trust will hardly expect to have to ‘up the ante’ in terms of SDLT in return for the privilege of receiving what is duly his or hers – or so one might think!

Gifts of land under a Will subject to IHT

The Revenue expressed the provisional view that the beneficiary of a specific gift (or ‘devise’) of land in a Will subject to IHT must pay SDLT on the assent, the consideration being the IHT paid. However, most recently, Crispin Taylor at IR Stamps has confirmed that, in the case where the Will provides for a specific devise, such that the PRs would have a right of recovery under IHTA 1984 s211(3), payment of the attributable IHT by the devisee does not constitute chargeable consideration for SDLT purposes. The SDLT Manual will be amended to reflect this in due course.

But s211(3) assumes payment of the IHT by the PRs. So the problem persists with the (rather more usual?) case where the beneficiary must pay the IHT himself before he gets the land from the estate. Further clarification is awaited.

Beneficiary of land under a trust

When a beneficiary under a trust becomes absolutely entitled, there will be a deemed disposal and re-acquisition at market value by the trustees under TCGA 1992 s71(1). The CGT will be a liability of the trustees – subject of course to the possibility of hold-over either as a business asset under s165 or when leaving a discretionary trust or (where there has been no prior interest in possession) an A&M trust under s260. The entitlement (a) might arise expressly under the trust, eg on the beneficiary’s attaining a specified age or (b) may be the subject of the trustees’ exercise of a power of appointment or a discretion.

While the Stamp Office have not as yet pronounced on this situation, the concern is that they might ask for SDLT, applying the principle mentioned above on deceased estates. As to case (b), there is a rather curious phrase in FA 2003 Sch 16 para 7 (Consideration for exercise of power of appointment or discretion): ‘any consideration given for the person in whose favour the appointment was made or the discretion was exercised becoming an object of the power or discretion’. What on earth does the word ‘for’ mean? Does it imply (narrowly) consideration given other than to the trust, under some form of anti-avoidance arrangement? Or could it go more widely than that? The Revenue are being asked.

(My comment on an article by Jeremy de Souza in the Westminster & Holborn Law Society Newsletter No 33 January/February 2005)

Application

Pending clarification by the Stamp Office of their analysis, especially, the probate case, practitioners would be advised to structure transactions so as to bring themselves within IHTA 1984 s211(3). That is, have the PRs pay the IHT and then recover it from the beneficiary.

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.

Matthew Hutton
April 2005