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. Review our SDLT filing and payment guide for filing requirements. 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

The 17% corporate rate does not apply to trusts. A company acting as trustee of a settlement is expressly excluded from it (Finance Act 2003, Schedule 4A, paragraph 3(4)). See our corporate buyer guide for who the 17% rate does catch.

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 5% 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 (worked through in our trust property purchases guide):

• 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 5% surcharge may apply to the new purchase

Corporate Trustees and the 17% Rate

A discretionary trust that uses a corporate trustee (a company acting as trustee) does not pay the 17% corporate rate, even on a residential property over £500,000. Schedule 4A, paragraph 3(4) of the Finance Act 2003 says references to a company do not include a company acting in its capacity as trustee of a settlement.

The 17% rate is designed to deter "enveloping": holding high-value residential property in companies to avoid SDLT on future transfers of shares. It still catches a company buying in its own right, a partnership with a corporate member and a collective investment scheme such as a unit trust.

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
• Purchases of commercial property are assessed at non-residential SDLT rates (0% to £150,000, 2% to £250,000, 5% above)
• 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

The deemed market value rule in FA 2003 s.53 applies only where the purchaser is a company that is connected with the vendor, or where the vendor is connected with a person acting as the company's nominee. Where it applies, SDLT is charged on the higher of:

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

Corporate trustees are usually outside the rule. FA 2003 s.54 switches s.53 off where the company holds the property as trustee in the course of a business that includes managing trusts (Case 1), or where it holds the property as trustee and is connected with the vendor only because of its role as trustee (Case 2). So s.53 usually bites only where the corporate trustee is also connected with the vendor for another reason, for example because the settlor controls it.

Where the trustees are individuals, s.53 does not apply and SDLT follows the actual chargeable consideration. Note that any mortgage debt the trustees take on is itself chargeable consideration, so a "gift" of a mortgaged property is not free of SDLT.

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

The rule prevents companies being used to move property at artificially low values. Where a company is the purchaser, SDLT is charged on full market value even if it pays only £1. It does not convert every family transfer into a market-value charge.

Settlements Creating Beneficial Interests

Where money or value is given for the creation or increase of a beneficial interest in property, that consideration is chargeable consideration for SDLT. A land transaction becomes notifiable once the chargeable consideration reaches £40,000, but tax is only payable once the consideration exceeds the relevant nil-rate band.

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 reaches £40,000, which makes the transaction notifiable to HMRC
• 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, with market value substituted where the buyer is a company
• 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 5% surcharge)

Common Questions