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Trust SDLT?

Trustees already own property...

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H&W want to buy a flat (cash purchase) to rent out. Ordinarily it would be their 2nd home so subject to SDLT+ (not sure what the actual name is, but you know what I mean, that extra 3%). They are considering setting up a trust to own the property with them as trustees and their son (a minor) as the beneficiary. 

Obvs they’ll get a solicitor to set it up, but as a general plan done it succeed in avoiding a) SDLT+, b) IHT?

 Thanks 

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02nd Apr 2019 10:45

What sort of trust?

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to Tax Dragon
02nd Apr 2019 11:08

Tax Dragon wrote:

What sort of trust?

Erm ... there's different sorts?

They're open to advice ...

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to atleastisoundknowledgable...
02nd Apr 2019 11:22

You really ought not to be relying on any answers here.

Bare trust- income belongs to child but taxable on parents. Asset is child's. PET.

Other sorts of trust - immediate IHT charge, then ten-yearly. Income not taxable on parents unless passed to child (e.g. under interest in possession) whilst under 18.

It might be good planning- but I wouldn't be doing it just to save the 3%. (Even if it does - I'll leave that point to others.)

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02nd Apr 2019 11:53

It will save the SDLT surcharge, but there are also disadvantages of doing it this way, such as when said child comes to purchase their first home, they will not be considered a first time buyer and they will have to pay the SDLT surcharge then so all you are doing is kicking the can down the road. They will also not be able to benefit from all the incentives for first time buyers that currently exist.

IHT implications will depend on what type of trust is used.

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to Adam12345
02nd Apr 2019 12:06

Bare trust aside, I thought the IHT outcome would be the same and the SDLT might vary depending on the type of trust.

How wrong was I?

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to Tax Dragon
02nd Apr 2019 12:39

That's what I meant. IHT will vary between bare trust (PET) and what I presume would be some sort of discretionary trust (CLT and possible principal charge).

I have seen this done before to avoid the SDLT surcharge, but for it to be worth it, in my opinion, the property would have to be of fairly significant value.

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to Adam12345
02nd Apr 2019 13:05

But surely a beneficiary of "some sort of discretionary trust" doesn't have a major interest in the property, or whatever the SDLT wording is? SDLT is not my forte (I'm yet to find my forte, but I know it's not SDLT!), so I'll kowtow to others on this.

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to Tax Dragon
02nd Apr 2019 13:05

If the trust is a bare trust or an IIP, the additional SDLT will still be payable. Only a discretionary trust will be effective for SDLT purposes, and will have IHT consequences.

Oh, I misread the question. The intention is that the parents will not be beneficiaries under the trust. However, if the parents are providing the funds, there will either be an IHT issue or a POAT issue.

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to Vile Nortin Naipaan
02nd Apr 2019 13:16

So I'm right on the SDLT? Go Tax Dragon!

POAT? If they're excluded from benefit?

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to Tax Dragon
02nd Apr 2019 14:06

No. You're all wrong, but there are now so many wrong answers on this forum I have stopped correcting them. Possibly the worst recent example of the decline in this forum's standards is here (someone else corrected that other particularly duff response):
https://www.accountingweb.co.uk/any-answers/dissolution-of-llp

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to Justin Bryant
02nd Apr 2019 14:14

At least you agree my very first sentence above :)

Edit I mean my very second sentence... my first that wasn't a question.

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to Tax Dragon
02nd Apr 2019 14:03

My bad! I was stilll misreading. I had the minor son being the beneficiary, but mum and dad living in it. That's not the case.

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07th Apr 2019 13:36

The trust purchase will almost certainly be liable to the higher rates of SDLT.
If the minor child has an interest in possession then this is because of FA03/Sch4ZA/para12 (treating parents and some other adults as the purchaser for surcharge purposes).
If no-one has a right to live in the property for life nor a right to the income from it then the higher rates apply because of FA03/Sch4ZA/para13.

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