Trusts and SDLT

Key facts

In a bare trust, the beneficiary is treated as the purchaser for SDLT purposes.
In a settlement (e.g. discretionary trust), the trustees are the purchasers and are liable for SDLT.
Transfers of property into a trust may trigger SDLT if there is chargeable consideration.
Transfers out of a trust to beneficiaries may also be chargeable depending on the trust type.
The higher-rate surcharge applies to residential property purchases by trustees in most cases.

Overview

Trusts are a common way of holding and managing property, whether for family wealth planning, protecting assets, or managing property for vulnerable beneficiaries. The SDLT treatment of trust transactions depends critically on the type of trust involved.^[1]

The two key distinctions are between bare trusts (where the trustee is simply a nominee) and settlements (including discretionary trusts and interest-in-possession trusts, where the trustee has active duties).

Bare Trusts

A bare trust (also called a simple trust or nominee arrangement) exists where the trustee holds the property for the beneficiary with no active duties — the trustee must act on the beneficiary’s directions.^[2]

For SDLT purposes, the key principle is “look through” the trust:

The beneficiary is treated as the purchaser (not the trustee)
The beneficiary’s personal circumstances determine the SDLT rate
If the beneficiary is a first-time buyer, first-time buyer relief may be available
The higher-rate surcharge depends on whether the beneficiary owns other property

Example: Parents buy a property in their names as bare trustees for their adult child. For SDLT purposes, the child is the purchaser. If the child owns no other property and is a first-time buyer, first-time buyer relief may apply (subject to the usual conditions).

Common Bare Trust Scenarios

Scenario	SDLT Treatment
Solicitor holds property as nominee	Beneficiary is the purchaser
Parent buys property as bare trustee for child	Child is the purchaser
Company holds property as nominee for individual	Individual is the purchaser

Settlements (Discretionary & Interest-in-Possession Trusts)

A settlement is any trust that is not a bare trust. This includes discretionary trusts, interest-in-possession trusts, accumulation trusts, and mixed trusts. For SDLT purposes:^[1]

The trustees are the purchasers and are liable for SDLT
The trustees must file the SDLT return and pay the tax
The trustees’ circumstances (not the beneficiaries’) determine SDLT liability
The higher-rate surcharge always applies to residential property purchases by settlement trustees

Important: Unlike bare trusts, purchases by settlement trustees are always subject to the 5% higher-rate surcharge for residential property. This is because the surcharge applies where the purchaser is not an individual acting in a personal capacity — and settlement trustees are treated as acting in a fiduciary capacity.

Transferring Property into a Trust

When property is transferred into a trust, the SDLT treatment depends on whether there is any chargeable consideration:^[1]

Gift with no mortgage: no chargeable consideration, so no SDLT payable
Gift with mortgage: the trust assumes the mortgage, which counts as chargeable consideration — SDLT is payable on the mortgage amount
Sale to the trust: SDLT is payable on the full purchase price

Transferring Property Out of a Trust

When property is transferred from a trust to a beneficiary, the SDLT position depends on the trust type and whether consideration is given:

Trust Type	Transfer Out to Beneficiary	SDLT Payable?
Bare trust	Transfer to the person already treated as owner	No — no change in beneficial ownership
Settlement — appointment for no consideration	Trustees appoint property to beneficiary	Generally no (no chargeable consideration)
Settlement — beneficiary pays for property	Beneficiary purchases from trustees	Yes — SDLT on the consideration paid

Special Situations

Will Trusts

Property left in a will trust (e.g. a life interest trust for a surviving spouse) passes via the probate process. The initial transfer from the estate to the trustees is not subject to SDLT, as it is a transfer on death for no consideration.^[2]

Trusts for Vulnerable Persons

There are no specific SDLT reliefs for trusts established for vulnerable beneficiaries (such as disabled persons or minors). The standard rules for bare trusts or settlements apply depending on the trust structure.

Changing Trustees

A change of trustee (where one trustee retires and another is appointed) does not trigger SDLT, as there is no change in beneficial ownership. The property continues to be held for the same beneficiaries under the same trust.

Frequently Asked Questions

What is a bare trust for SDLT purposes?

A bare trust exists where the trustee holds the property as a nominee for the beneficiary, with no active duties. For SDLT, the beneficiary (not the trustee) is treated as the purchaser. The beneficiary’s personal circumstances determine the SDLT rate, including eligibility for first-time buyer relief.

Who pays SDLT when trustees buy property?

For settlements (including discretionary and interest-in-possession trusts), the trustees are the purchasers and are liable for SDLT. They must file the SDLT return and pay any SDLT due. The trust itself does not have a separate legal identity for SDLT — the trustees act in their capacity as trustees.

Does the higher-rate surcharge apply to trust purchases?

Yes, in most cases. Purchases of residential property by trustees of a settlement are subject to the higher-rate surcharge. The only exception is a bare trust, where the surcharge depends on the beneficiary’s personal circumstances (i.e. whether they already own another property).

Is SDLT due when property is transferred into a trust?

It depends on whether there is chargeable consideration. If property is gifted into a trust with no consideration and no mortgage, SDLT is generally not payable. If the trust assumes a mortgage on the property, the mortgage amount constitutes chargeable consideration and SDLT may be due.

Sources

SDLT: trusts and settlements — HMRC
SDLTM34000 – Special provisions: bare trusts — HMRC
Finance Act 2003, Section 106 — legislation.gov.uk