Property is sometimes held in trust by trustees and, to ensure the fairness, integrity and consistency of the LBTT regime to all, the ADS will apply to certain purchases made by trusts.
Currently, for the purposes of LBTT, only the beneficiaries of bare trusts are treated as the buyer when a trustee or trustees on behalf of a trust purchases a property. This treatment continues to apply to the provisions of the LBTT(A)(S)A 2016.
A bare trust:
(a) is a trust under which the property is held by a person as trustee-
(i) for a person who is absolutely entitled as against the trustee, or who would be so entitled but for being under a legal disability by reason of non-age or under another disability, or
(ii) for two or more persons who are or would be jointly so entitled, and
(b) includes a case in which a person holds property as nominee for another.
"Absolutely entitled" refers to a case where the person has the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustee -
(a) to resort to the property for payment of duty, taxes, costs or other outgoings, or
(b) to direct how the property is dealt with.
Where the buyer in a transaction to purchase a dwelling is the trustee of a bare trust, the beneficiary is treated by the LBTT(A)(S)A 2016 as the buyer in that transaction for the purposes of determining whether the ADS will apply.
Where title to a dwelling in such a transaction is taken by the trustee under a bare trust, the buyer of the dwelling is deemed to be the beneficiary under that trust. This is the case irrespective of whether the trustee registers the title in the Land Register or not.
Other types of trust can have beneficiaries with ownership interests in property held by the trust that are similar to the interests of the owner of a property. Such trusts may not be bare trusts, but the beneficiaries’ interests are such that it is appropriate for the purposes of the LBTT(A)(S)A 2016 to treat the beneficiary as the buyer.
Consequently, the LBTT(A)(S)A 2016 extends the treatment of bare trusts to purchases of property by the trustees of certain other trusts.
In particular, this treatment is extended to transactions where the buyer is the trustee of a settlement (being a trust that is not a bare trust) and the beneficiary under the settlement has a relevant interest in a dwelling that is or forms part of the trust property. A “Liferent Trust” in Scotland is an example of such a settlement trust.
Note: Liferent Trusts create "improper (or beneficial) liferents" whereby the liferenter enjoys the benefit of property by way of a trust. These differ from "proper liferents", whereby the liferenter is vested directly with an interest in property. Further details on "proper liferents" can be found in part LBTT10064 of the guidance.
A relevant interest in a dwelling that comprises or forms part of the trust property, in respect of a beneficiary under a settlement, exists where, under the terms of that settlement, the beneficiary is entitled to:
(a) occupy the dwelling for life; or
(b) income earned, whether net or gross, in respect of the dwelling.
Where the buyer in a transaction to purchase a dwelling is the trustee of a trust under a settlement where the beneficiary has such a relevant interest in a dwelling, such a beneficiary is treated by the LBTT(A)(S)A 2016 as the buyer for the purposes of that Act.
Where title to a dwelling is taken by the trustee under such a settlement, and the beneficiary under that trust has a relevant interest in the dwelling, the owner of the dwelling is deemed to be that beneficiary. This is the case irrespective of whether the trustees register the title in the Land Register or not.
Additionally, the rules that apply to transactions involving individual or joint buyers, with regard to the existence of a spouse, civil partner, cohabitant or dependent children in determining the number of dwellings owned by a buyer at the end of the day that is the effective date of a transaction also apply to transactions involving the purchase of a dwelling by a trustee on behalf of either a bare trust or a settlement in which there is a beneficiary with a relevant interest.
Any dwelling owned by a spouse, civil partner, cohabitant or child under the age of 16 of a beneficiary under either a bare trust or a settlement trust in which they hold a relevant interest will therefore potentially count towards the number of dwellings owned by the buyer (essentially, the beneficiary) when a transaction involves the purchase of a dwelling by a trustee on behalf of a either a bare trust or a settlement trust in which there is a beneficiary with a relevant interest.
As with those provisions relating to purchase transactions by individuals, where a beneficiary under either a bare trust or a settlement trust in which they hold a relevant interest owns no other dwelling, or the dwelling being purchased is the replacement of a beneficiary's only or main residence, the ADS will not apply.
Purchases by a trustees on behalf of trusts that are not bare trusts and where the beneficiaries have no relevant interest will, however, always be liable for the ADS, irrespective of whether the trustees own an existing property or not. This means acquisition by such trustees are treated in the same way as acquisitions by companies etc.
Example 52: Trust purchase of first dwelling for beneficiary, beneficiary then buys another dwelling
Example 53: Beneficiary under Trust purchases dwelling, Trust already owns dwelling
Example 54: Trust replaces main residence for beneficiary, Trust already owns rental dwelling
Example 55: Trust purchases first dwelling for beneficiary, beneficiary's spouse already owns main residence which is not being replaced