SDLTM31720 - Application

Trusts and powers: Settlements

A settlement for stamp duty land tax is any trust arrangement other than a bare trust. There are many types of trust arrangement. Common examples are

Interest in possession trusts

This type of trust exists when a beneficiary, known as an income beneficiary, has a right to the income of the trust as it arises. The trustees must pass all of the income received, less any trustees’ expenses and tax, to the beneficiary.

A beneficiary who is entitled to the income of the trust for life is known as a life tenant in England, Wales and Northern Ireland or a life-renter in Scotland.

The income beneficiary often does not have any rights over the capital of this kind of trust. Normally the capital will pass to a different beneficiary or beneficiaries at a specific time in the future or following a specific future event.

Discretionary trusts

Trustees of a discretionary trust generally have discretion about how to use the capital and income of the trust. They may be required to use any income for the benefit of particular beneficiaries but they can decide how much is paid and to which beneficiaries.

The beneficiary of a discretionary trust has no right over or interest in the capital or income of the trust.

Other trusts

There are other kinds of trust that are not bare trusts and so will be regarded as settlements for the purposes of stamp duty land tax. These include accumulation and maintenance trusts, mixed trusts which are mixtures of more than one type of trust and trusts set up under the laws of foreign jurisdictions.

When the trustees of a settlement acquire land, the trustees will be regarded as the purchasers for stamp duty land tax, therefore all the normal rules regarding notification and payment relate to the responsible trustees.

The responsible trustees in relation to a land transaction are the persons who are trustees at the effective date of the transaction and any person who subsequently becomes a trustee.

No penalty or interest on such a penalty will be recovered from a person who did not become a responsible trustee until after the relevant time.

The relevant time is, in relation to a daily penalty or interest on that penalty, the beginning of that day and in relation to any other penalty or interest on that penalty the time when the act or omission that caused the penalty to become payable occurred.

Where payment for a power of appointment or discretion to be exercised is made, it will be treated as consideration for the acquisition of a land interest through the exercise of the power or discretion.

Therefore, where consideration is provided to the trustees in exchange for the exercise of their power of appointment so that an interest in land passes out of the trust to a person, the consideration so provided is treated as consideration for the acquisition of the relevant interest in land.

More information on trusts can be found on the HM Revenue & Customs website at www.hmrc.gov.uk/pdfs/ir152.htm and in the Trusts and Settlements & Estates Manual.