What is the effect of a third party contribution protected by a declaration of trust on the 3% surcharge and on first-time buyer’s relief?

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We are currently making sure that where possible and advisable our clients utilise a Declaration of Trust. In situations where there is a third party contributor (not a gift) to be detailed in the Declaration of Trust our ‘head scratcher’ question is whether the contributor will affect stamp duty.

So for example if we are acting for buyers who would qualify for the lower rate of stamp duty but the contributor detailed in the declaration of trust owns other properties would this then push the buyers into the higher rate as the contributor whilst not being a legal owner of the purchase property would have an interest? Further with recent changes for first time buyers and stamp duty relief does this override any purchase with a third party contributor for lower/higher rates? We have gone round in circles on this one a little so would be grateful of any advice you can provide.

The contributor would have a beneficial interest detailed in the declaration of trust. If there is a mortgage the declaration of trust can only go ahead if lender agrees, if they do not then clients and contributor would have to consider the contribution as gift only.

Buyers for example get cash from contributor towards purchase price and then if they sell in the future that sum is repaid to contributor as either fixed sum or % share. I think in these situations if the contributor already owns or has interest in other properties this could push them into higher rate? But then it’s also now further unclear how this would affect first time buyers.

 

 

If the contributors lent the money and took a security interest there would be no SDLT charge on them and the buyer’s acquisition would not be subject to the 35 surcharge because the contributor already owned a major interest in another dwelling. This is because the SDLT legislation requires a person to be a ‘purchaser’ before they are chargeable.

A ‘purchaser’ is a person acquiring a ‘chargeable interest’.

A ‘chargeable interest’ is

‘(a) an estate, interest, right or power in or over land in the United Kingdom, or

(b) the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power,
other than an exempt interest’.

A ‘security interest’ is an exempt interest and is defined as:

‘an interest or right (other than a rentcharge) held for the purpose of securing the payment of money or the performance of any other obligation’.

Where the contributor is a purchaser as defined above and owns a major interest in another dwelling on the effective date (and the other conditions are fulfilled) the acquisition will be subject to the 3% surcharge.

First-time buyer’s relief will not be available in respect of the acquisition unless all the purchasers are first-time buyers who intend to occupy the purchased dwelling as his only or main residence.

At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.

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