By Zoe Chandler, Senior Tax Manager at Milsted Langdon

The former Deputy Prime Minister has been in hot water over her failure to pay the correct amount of Stamp Duty Land Tax (SDLT), when acquiring a new property in Hove.

She has acknowledged the error when purchasing the £800,000 property during the summer but has said it was the result of confusion over another property held in trust within her constituency in Ashton Under Lyne.

The facts

Rayner brought the new property in Hove in May of this year and at the time paid the standard rate of stamp duty for the flat, estimated to be £30,000 based on the rules for a main residence.

She claims that at the time, another property in Greater Manchester, previously owned with her husband and where she spent much of her time and care for her kids, was placed in trust, with her children as beneficiaries.

As a result of this change, she was advised that her name had been removed from the deed and she was no longer considered as the owner of the property.

Therefore, she was able to classify the Hove flat as her only dwelling and benefit from a lower rate of SDLT.

While many experts say that this error in the advice given should have been picked up in the conveyancing process, the SDLT was paid at the incorrect rate.

If the terms of the trust, which haven’t been made public, allowed her and/or her minor children to live in her Greater Manchester home for the rest of their lives, the current SDLT rules would likely count that as her main property.

Added to this, Rayner has confirmed that much of her personal correspondence, which would also suggest that she saw it as her main property, regardless of the changes to the deed.

Prior to her resignation, she said in a statement: “It remains my family home, as it has been for over a decade. It contains the majority of my possessions and it is where I am registered for most official and financial purposes ranging from credit cards to the dentist to the electoral roll.

“But most importantly, it is where my children live and have gone to school and now college and where I regularly live while caring for them.”

The current SDLT rules

When you purchase a property, you will normally need to pay SDLT at different rates for increasing bands of the property price, depending on when you bought the property, how much you paid for it and if there are any exemptions.

If you are buying the property as the only residential property you own, you will usually pay SDLT at the following rates (apart for some exemptions for first-time buyers):

However, if you then proceed to buy an additional property, there is an additional surcharge added to the SDLT rate of 5%.

This is where the confusion arises in the case of Angela Rayner. The advice given suggested that as she was removed from the deed due to the creation of the trust, she wouldn’t have to class her Greater Manchester home as her property, however as a result of the terms of the trust, she should have paid SDLT at the higher additional rate.

With the surcharge applied, it is expected that her SDLT bill should have been £70,000, rather than £30,000.

The need for advice

Since the additional property surcharge was introduced, many experts have looked into the various means of mitigating the SDLT liability produced.

When it comes to trusts, while SDLT applies in the normal way, it is important to establish who is the buyer, the seller, beneficiaries and trustees.

Under the Finance Act 2003, certain beneficiaries are treated as owning a major interest in any property held within a trust.

This means they are regarded as the buyer or seller for land transaction purposes where the trust is involved. These beneficiaries include:

• A beneficiary of a bare trust
• A beneficiary entitled to the income from the property
• A beneficiary with a right to occupy the property for life

Where a beneficiary is treated as the purchaser, any other residential properties they own are considered when assessing whether the SDLT surcharge applies. Where the beneficiary is a minor, the parents and/or their spouses will be treated as owning any property within the trust.

The very public case of Angela Rayner has raised a number of questions for property owners about the use of trusts and the SDLT impact on future purchases of additional properties.

If you have previously placed a property in trust for your beneficiaries or plan to do so, it is really important to take detailed legal and tax advice so that you do not create unintended liabilities from your actions.

To find out more about our property tax and trust expertise, please contact us.