Stamp Duty Land Tax

It seems that Angela Rayner, who has just resigned as Deputy Prime Minister, failed to take specialist tax advice and as a result appears to have been unaware of two “fictions” in the law on Stamp Duty Land Tax (SDLT). As we all now know, she paid the basic rate of SDLT (£30,000) on buying a flat in Brighton, when she should have paid the higher rate (£70,000).

The higher rate is due when an individual owns more than one home. Ms Rayner didn’t own another home when she completed her Brighton purchase.

But the two “fictions”, combined, treat her as owning another home, because:

• ownership by some (but not all) kinds of trust is treated as a trust beneficiary’s personal ownership; and
• ownership by an individual’s minor child is regarded as ownership by the parent.

We don’t know the exact terms of the trust for Ms Rayner’s son, but Jonathan Peacock KC must have advised that it was the sort of trust which caused the son to be treated as the owner of the home that it owns.

A summary is set out in HMRC’s SDLT Manual at paragraph SDLTM09815, but I wonder how many people, other than those who specialise in both SDLT and trusts, would actually understand what is said and realise that it might apply to Ms Rayner?

Here it is:

SDLTM09815

Where an individual is a legal and beneficial owner of an interest, they will own that interest for the purposes of Condition C, but there are a number of other situations in which an individual will be treated as owning an interest in another dwelling.

Bare Trusts

Where an individual has absolute beneficial ownership of an interest in land but legal ownership is held by another person (as in a bare trust or nominee arrangement) the individual with beneficial ownership is treated for the purposes of Condition C as owning that interest [Para 3 Sch 16 FA 2003 and para 11(2) and (3) Sch 4ZA FA 2003]. This also applies where the beneficiary of the trust would be absolutely entitled but for being underage, or disabled, in a way that prevents them from being legally capable of owning property.

Trusts

Where a dwelling is owned by another person subject to a trust which gives an individual a right to occupy the dwelling for life or the right to the income earned in respect of the dwelling, that individual is treated as owning the interest [Para 11(1) and (3)]. This treatment will not apply to interests in dwellings which are trust property of a trust that gives the trustee a discretion to apply income between a class of beneficiaries or a trust which accumulates income.

Children

Where a minor child would be treated as owning an interest in land because they are a beneficiary of a trust, the parents of that child (and, if the parents are not married to one another, the spouses or civil partners, if any, of those parents) are treated for the purposes of Condition C as owners of the interest [Para 12].

Similar treatment applies to an interest in land outside of England, Wales or Northern Ireland owned directly by an individual under the age of 18 (where that is allowed). In this case, the parents of that child (and, if they are not married to one another, the spouses or civil partners of those parents) are treated for the purposes of Condition C as owners of the interest [Para 17(4)].

Children subject to the Mental Capacity Act 2005 or the Mental Capacity Act [Northern Ireland] 2016

Before 22 November 2017, purchases of property on behalf of a child made by a trustee acting pursuant to an appointment made by the Court of Protection in England, (or pursuant to an appointment under the Mental Capacity Act (Northern Ireland) 2016) were treated as if they were a purchase by the child’s parents. A consequence of this is that other property held by the parents (and, if not married to each other, held by their spouses/civil partners) was taken into account in testing whether the purchase was a higher rates transaction.
“As from the 22 November 2017, such a purchase is not so treated and the parent’s property is ignored. [Para 12(1A)].”

Para references are to paragraphs in Schedule 4ZA of the Finance Act 2003.

Not exactly clarity!

Perhaps Ms Rayner read this, didn’t follow it, and so looked at the SDLT calculator on the Revenue’s website? Or maybe she went straight to the calculator.

The calculator is much more straightforward and is easier to use, but, unfortunately, it gives the wrong answer. Putting what is reported about Ms Rayner’s purchase into the calculator gives no indication that she should have paid the higher (extra 5%) rate.

For years now, the Revenue’s calculator has indicated that any trustee buying a home should be paying the extra 5%. I know that many representations have been made about this. My cynical conclusion is that the Revenue are not bothered about an inaccuracy that must frequently result in trustees overpaying.

It is the converse of this that seems to have caught Ms Rayner. The calculator does not pick up that her son’s trust’s ownership of another home is deemed to be hers.

Given the complexities of SDLT, it seems from Sir Laurie Magnus’ report that Angela Rayner was recommended, but failed to take, specialist tax advice and it was the failure to take advice when recommended to do so that ultimately led to the resignation. Tax law is often not straightforward – as the current changes to agricultural and business property relief for inheritance tax purposes illustrate. Good tax advice does not come cheap but, as this case shows, good tax and legal advice is absolutely worth the investment.

If you have any queries relating to Stamp Duty Land Tax, or indeed any other tax related issue, please contact Anthony Nixon. Visit our website page relating to tax, to see other areas we can help you with.

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