Trusts and Stamp Duty

When Trusts Pay SDLT

Stamp Duty Land Tax (SDLT) applies when a trust acquires a chargeable interest in land or property. The tax treatment depends heavily on the type of trust and the circumstances of the purchase.

Key trust types for SDLT purposes:

• Bare trusts — transparent for SDLT; tax assessed on the beneficiary
• Discretionary trusts — trustees are the purchaser; assessed on trust's circumstances
• Interest in possession trusts — beneficiary with current right to income; SDLT may depend on beneficiary's position
• Unit trusts and OEICs — collective investment schemes with special SDLT rules

Additionally, corporate trustees may trigger the 17% SDLT surcharge for high-value residential property (above £500,000) unless a relief applies.

Bare Trusts (Transparent for SDLT)

A bare trust (also called a "simple trust" or "nominee arrangement") holds property for a beneficiary who has absolute entitlement to both income and capital.

SDLT Treatment

Bare trusts are transparent for SDLT purposes. This means:

• SDLT is assessed as if the beneficiary purchased the property directly
• The beneficiary's personal circumstances determine SDLT liability (e.g., first-time buyer status, existing properties)
• If the beneficiary already owns property, the 3% surcharge applies
• First-time buyer relief is available if the beneficiary qualifies

Practical Use

Bare trusts are commonly used for minor children or vulnerable beneficiaries. Parents or guardians hold legal title, but the beneficiary has beneficial ownership. For SDLT, the beneficiary's status—not the trustee's—is determinative.

Discretionary Trusts

In a discretionary trust, trustees have discretion over distributions to beneficiaries. No beneficiary has an absolute entitlement, so the trust is not transparent for SDLT.

SDLT Assessment

When discretionary trust trustees purchase property:

• The trustees are treated as the purchaser
• SDLT is charged using standard residential rates (or non-residential rates if the property is commercial)
• No first-time buyer relief is available (trusts cannot be first-time buyers)
• If the trust already holds property, the 3% surcharge may apply to the new purchase

Corporate Trustees and the 17% Surcharge

If a discretionary trust uses a corporate trustee (a company acting as trustee), and the property is residential and worth over £500,000, the 17% SDLT surcharge may apply unless a relief is available (e.g., property rental business relief, charitable relief).

This 17% rate is designed to deter "enveloping"—holding high-value residential property in companies to avoid SDLT on future transfers of shares.

Unit Trusts and OEICs

Unit trusts and Open-Ended Investment Companies (OEICs) are collective investment schemes. They have special SDLT rules.

SDLT Treatment

When a unit trust or OEIC acquires property:

• SDLT is charged on the trustee or fund manager as purchaser
• Transactions are typically assessed at non-residential rates (0.5% flat rate for many commercial property funds)
• Residential property held by a fund may trigger higher SDLT or the 17% surcharge if corporate structures are involved

Most retail investors in unit trusts or OEICs never encounter SDLT directly—fund managers handle it at fund level. However, large institutional purchases or seeding transactions may have significant SDLT consequences.

Connected Parties Surcharges

When a trust purchases property from a connected party, SDLT is charged on the higher of:

• Actual consideration paid, or
• Market value of the property

Who is a Connected Party?

Connected parties include:

• The settlor (person who created the trust)
• Beneficiaries
• Relatives of the settlor or beneficiaries (spouses, civil partners, ancestors, lineal descendants, siblings)
• Business partners or companies controlled by connected individuals

Anti-Avoidance Purpose

This rule prevents families from transferring property into trusts at artificially low values to reduce SDLT. Even if the trust pays only £1, SDLT is charged on full market value.

Settlements Creating Beneficial Interests

If consideration for the creation or increase of a beneficial interest in property exceeds £40,000, SDLT is chargeable.

What is a Beneficial Interest?

A beneficial interest is the right to benefit from property (e.g., receive income, occupy, or receive capital on sale). In trust law, legal title and beneficial ownership can be separate.

When SDLT Applies

SDLT is triggered when:

• Someone contributes money or value to acquire a beneficial interest in property held by a trust
• The contribution exceeds £40,000
• A chargeable interest in UK land is created or transferred

Common Scenarios

This rule often applies in family arrangements:

• Child contributing capital to parents' property held in trust to gain a share
• Spouse acquiring a beneficial interest in property held by the other spouse's trust
• Business partner contributing to property held in partnership trust

Always consult a solicitor when structuring such arrangements—SDLT can arise even if no formal sale occurs.

Scotland and Wales

Scotland: Land and Buildings Transaction Tax (LBTT)

Scotland uses LBTT with similar trust principles:

• Bare trusts are transparent; tax assessed on beneficiary
• Discretionary trusts: trustees are purchaser
• Connected party rules apply (market value substitution)
• No direct equivalent to England's 17% corporate surcharge, but Additional Dwelling Supplement (ADS) may apply

Wales: Land Transaction Tax (LTT)

Wales uses LTT with comparable rules:

• Bare trusts transparent for LTT
• Discretionary trusts: trustees liable
• Connected party anti-avoidance provisions
• Higher rates supplement for additional properties (similar to SDLT 3% surcharge)

Common Questions