Angela Rayner’s recent resignation has put a spotlight on property ownership and tax. At the heart of the controversy lies a lesser known but significant aspect of property taxation: the 5% SDLT surcharge for additional dwellings. Whilst the political headlines focus on transparency and ethics, it is important to understand the legal and tax issues at play, not least because they could affect many property owners who are not aware of the risks.
This article explores how SDLT works for individuals, when the 5% surcharge applies, the particular treatment of trusts and what lessons can be learnt to help you steer clear of the pitfalls.
What is SDLT and the 5% surcharge?
Stamp Duty Land Tax (SDLT) is a tax payable on the purchase of property or land in England and Northern Ireland. The amount of SDLT depends on the purchase price, the type of the property, and the circumstances of the buyer.
There is a higher rate of SDLT (the 5% surcharge) which applies to purchases of additional residential properties. This means that if an individual already owns another residential property and is not replacing their main residence, they will pay an additional 5% on top of the standard SDLT rates.
Trusts and beneficial ownership
SDLT for an individual is not just about legal ownership (i.e. the name in whom the property is registered), it is also about beneficial interests, which can arise from trust arrangements or family structures such as those affecting Angela Rayner.
The 5% surcharge will normally apply to most property purchases by trusts if those are discretionary in nature.
Where, under the terms of a trust, an individual has a right to occupy the property for life or a right to income generated from the property, that beneficiary is deemed to own the property for SDLT purposes. That might mean that the ordinary rates of SDLT will apply.
If, for example, the trust sells a property occupied by that individual and simultaneously buys a replacement property then the SDLT position will be the same as if that individual had owned the property themselves.
Minor children and the “parent trap”
It is the treatment of minor children who benefit from trusts and how this affects SDLT liability which has attracted recent attention. This is an esoteric part of the legislation and, as Angela Rayner’s circumstances have shown, these rules can easily catch people out.
Under the legislation, if a minor child owns or is treated as owning a property (for example as a trust beneficiary as outlined above), then their parents are treated as owning that property for the purposes of SDLT.
That means that the parent may be liable for the 5% surcharge on a new purchase of a property by them, even if the only other property “they” own is held in trust for their child.
There are exceptions to this rule such as properties purchased at the direction of the Court of Protection, but parents should be aware that even indirect or trust-based property interests held by their children can affect their own SDLT position and should proceed with caution when considering purchasing properties.
Final thoughts
The SDLT surcharge rules are far from obvious. Trusts, beneficial ownership, and even the property interests of minor children can all affect whether the 5% higher rate applies. Angela Rayner’s case is a timely reminder that legal ownership is only part of the picture and that tax liability can arise in unexpected ways.
If you are considering purchasing a property and have interests in trusts or children with property holdings, please seek specialist legal and tax advice. Please visit our website for more details of our team.
This is only intended to be a summary and not specific legal advice.
