How does the 3% surcharge apply where there is a declaration of trust to protect a lender?

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“Mine is a general enquiry which arises from the comments that you made in relation to the BLG members’ enquiry on 7 February re: Declaration of Trust to protect monies being provided by parents to assist child with house purchase.

I just wanted to check that I have understood what you are saying correctly, namely that if for example parents ‘advance’ money to their daughter to use as a deposit on purchase of a first home being bought in the joint names of that daughter and her boyfriend and the parents say so as to protect against say the daughter and boyfriend falling out that there should be a declaration of trust providing that daughter and boyfriend hold part of the beneficial interest in the property on trust for the parents then the additional 3% stamp duty rate will apply if the parents already own one or more dwellings.

Surely this is not what was envisaged when the legislation was introduced as parents around the country would be penalised by helping their children get on the property ladder and if so then presumably parents would be better off taking a second charge over the property rather than a Declaration of Trust.”

Source: BLG Member 


I assume that this is the Q&A you are referring to:

‘“Parents A and B, who already own one or more properties wish to assist their Child C (and perhaps the Child’s Partner P) in the purchase of the child’s only property.

The parents provide, for example, 30% of the property value towards the purchase.

C and P purchase the property and at the same time enter into a Declaration of Trust, setting out the beneficial ownership of the property, showing that A and B have a 30% interest in the property, although they are not the legal owners.

A and B are to receive 30% of the sale proceeds with the balance being divided in accordance with the terms of the Declaration. The Declaration normally provides that any mortgage secured on the property has to be repaid by C and P out of their share of the sale proceeds.

Since April 2016 is this an issue as C and P hold the property on the Bare Trust for C, P, A and B on the terms set out in the Declaration?  C and P have no other property interests, but A and B are beneficial owners under the Trust Deed and do have other property interests.

Is the 3% surcharge payable in these circumstances in accordance with chapter 5.7 of the HMRC Guidance Notes of November 2016?”

A bare trust is ignored for the purposes of the 3% surcharge and the beneficial owners are treated as joint purchasers.  Where there is more than one purchaser the surcharge applies to the purchase if it would apply in the case of any one of the purchasers.  So that means that the surcharge will apply here because of the parents’ ownership of another dwelling (assuming that the other conditions are satisfied).’

If the transaction is structured as set out in the question quoted above the 3% surcharge will apply to the acquisition of the property.

You are correct – if the parents lent the money and took a security interest there would be no SDLT charge on them and C’s acquisition would not be subject to the surcharge. 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 ‘security interest’ is an exempt, not a chargeable, 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’.

As for this being an unintended consequence of the legislation, well HMRC are under pressure to raise more tax – low-hanging fruit perhaps?

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.

For further guidance please see Ann’s Questions and Answers for Stamp Duty Land Tax. This free resource covers a wide range of SDLT queries and you can filter the results to find a specific query.

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