SDLT 3% Surcharge

Will the 3% Surcharge apply, any guidance? Inheritance/Trust Issues

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We have a couple who are looking to purchase their 'first' residential property, I will refer to them as M & F.

M's affairs are quite straightforward, he has never owned, nor does he currently own a residential property.

F on the otherhand inherited 2/3 of her late father's PPR back in April 2008. It was quite a complex series of events that led to her receiving the inheritance and it ended up being settled in Court. A condition of her entitlement to the 2/3 of the property is that the property will be held on trust until her uncle (who currently occupies the property) dies. In return, he must pay the mortgage (a very nominal sum). Once the mortgage is repaid, he must pay rent equating to 25% of the market value rent.

From my reading into the higher rate of SDLT rules, it would appear that the acquisition of a Residential property by M&F would trigger the 3% surcharge, due to F's beneficial interest in her late fathers PPR. This seems slightly unfair, as she has no control over the property, is unable to dispose of it and the tenant could potentially go on to live for another 40 years (or more!).

Obviously as first time buyers, the 3% surcharge could give rise to a significant additional cost to M&F.

Is anyone able to locate anything which would suggest the 3% surcharge would not be due in the above circumstance, or alternatively offer an opinion as to whether HMRC would make any kind of exception/clearance if the case were presented to them?

Many thanks,

 

 

 

 

 

Replies (6)

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Out of my mind
By runningmate
13th Mar 2017 18:12

Presumably if M purchased the new home in his sole name the 3% surcharge would not apply.
Just saying ....
RM

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By Justin Bryant
13th Mar 2017 18:48

No 3% SDLT surcharge will apply here as she has no IIP in the trust. That is explained in HMRC's guidance. Assuming they are married, the above response by RM can be ignored.

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By Dick Stastey
14th Mar 2017 10:46

I don't agree Justin. And I think you are misreading the HMRC guidance.

The 3% surcharge will not apply because she does not have the IIP.

As you are aware, FA 2003, Sch 16, para 4 says that, by default, the trustees of a settlement (being a trust other than a bare trust) are treated as acquiring (and, therefore, holding) the chargeable interest.

However, Sch 4ZA, para 11, then says that where a person is a beneficiary under a settlement (somebody with an IIP is a beneficiary) and is entitled under the terms of the settlement to occupy the property concerned for life, then they (the beneficiary) who is treated as holding the interest in the dwelling.

Accordingly, in the circumstances described in the OP, F is not treated as holding any other interest, with the effect that the higher rates do not apply.

Ask a decent SDLT expert.

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Replying to Dick Stastey:
Out of my mind
By runningmate
14th Mar 2017 10:54

I think you have misunderstood Justin's reply (which is to the effect that the 3% surcharge will not apply - and therefore you & he are in agreement).
RM

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Replying to runningmate:
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By Dick Stastey
14th Mar 2017 10:58

Damn. And I thought for a minute that I'd caught him with his pants down. You are correct, and I am actually in agreement with Justin.

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By Justin Bryant
14th Mar 2017 11:17

Yes; and this link is possibly useful re what's an IIP for these purposes:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg36321

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