SDLT and bare trusts
As I explained in my earlier piece for LawSkills, (SDLT and trustees: a reminder) the SDLT legislation distinguishes between bare trusts and settlements (which are defined as trusts which are not bare trusts). The rules for bare trusts are outlined below.
A ‘bare trust’ for SDLT purposes means a trust under which property is held by a person as trustee:
(a) for a person who is absolutely entitled as against the trustee, or who would be so entitled but for being a minor or other person under a disability, or
(b) for two or more persons who are or would be jointly so entitled,
and expressly includes a case in which a person holds property as nominee for another.
A person is absolutely entitled to property as against the trustee where the person has ‘the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustee, to resort to the property for payment of duty, taxes, costs or other outgoings or to direct how the property is to be dealt with.
As for capital gains tax, the SDLT general rule is that where a person acquires or disposes of a chargeable interest or an interest in a property-owning partnership as bare trustee, the SDLT legislation applies as if the interest were acquired or disposed of by the beneficial owner. In other words, the acts of the trustee in relation to the chargeable interest are treated as if they were the acts of the person or persons for whom he is trustee. In such a case, the beneficiaries are responsible for any SDLT compliance.
Grant of lease to a nominee – the special rule
The general rule does not apply in a case where the transaction is the grant of a lease to or by a nominee (not necessarily by or to the beneficial owner). Paragraphs 3(3) and 3(4) of Schedule 16 FA 2003 make such a transaction chargeable to SDLT as if the nominee was the purchaser or vendor of the whole interest (legal and beneficial) in the lease. This should not have any adverse consequences in the case of a grant to a nominee unless the nominee gives consideration for the grant (which is unlikely).
This means that a group relief claim may be necessary where a lease is granted by one group company to a connected company as its nominee (so as to avoid a market value charge arising under section 53 FA 2003).
Where a nominee takes a grant of a lease as bare trustee for a purchaser the nominee (and not the beneficial owner) is responsible for filing the land transaction return and paying any SDLT due.
This special rule applies to leases granted after 19 May 2005 and is an anti-avoidance provision. It may cause technical problems in relation to the application of sale and leaseback relief under section 57A where the leaseback is to a nominee or on a surrender and re-grant involving a nominee.
Transfers of the legal title (other than the grant of a lease to a bare trustee) are not land transactions where the beneficial ownership remains with the same person. For example, where legal title to a partnership’s real property is acquired by trustees this is not a land transaction.
- The transfer of legal title to property from bare trustees to a beneficiary when a trust comes to an end will not be a land transaction for SDLT purposes.
- Take care when leases are granted by or to bare trustees as there can be an SDLT trap as explained above.
First published on the LawSkills website, an online resource for private client lawyers and other professionals dealing with private client issues.
Do you have a stamp duty land tax query? If you do please refer to Ann’s SDLT Questions and Answers which provides free guidance across a wide range of SDLT topics.