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Alex J.
Alex J., Litigator
Category: UK Law
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Experience:  LLB, LPC, DELF
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My wife and I are going to buy a house. Cost £900k freehold,no

Customer Question

My wife and I are going to buy a house. Cost £900k freehold,no mortgage.We would live in the house.We have 2 children and 3 grandchildren. We are considering setting up a Discretionary trust.What are the pitfalls to this type of trust? Would stamp duty have to be paid? What are the likely costs of setting up such a trust. My wife is 71 and I am 77. EW
Submitted: 1 year ago.
Category: UK Law
Expert:  wendy-Mod replied 1 year ago.
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Customer: replied 1 year ago.

So far zero information. Basically I wish to know whether it is worthwhile to consider putting our house purchase in a discretionary trust and would it save stamp duty. Thank you. EW.

Expert:  wendy-Mod replied 1 year ago.
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Expert:  Fran-mod replied 1 year ago.

We are still working with the professionals to find you the best possible match. I wanted to touch base to see if you still needed a professional’s assistance.

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Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

I can assist you with this. However when you coming to setting up any professional arrangement you will need to obtain professional advice. This is only a question and answer service and therefore I can only give you a guide.

I will write a response and post it this evening if that is ok.

Kind regards

AJ
Expert:  Alex J. replied 1 year ago.
Hi,

Thank you for your patience.

I will deal with each point in turn:
1. Stamp Duty Land Tax
If you purchase the property into your name you will pay SDLT. If you subsequently transfer it to a discretionary trust at zero value their will be no SDLT charge as it is transferred at no consideration.

2. Discretionary Trust
The main disadvantages of a discretionary trust are (a) the cost of running the trust every year i.e trustees fees (b) the cost of setting up the trust and (c) you lose legal ownership of the property.

The main advantages are the discretionary trust will in part benefit from lower inheritance tax if the conditions of the trust are right (for example you will be charged additional tax if the trust last longer than 10 years).

Do you have any other assets?

I look forward to hearing from you.

Kind regards

AJ
Customer: replied 1 year ago.

Thank you for your response. What if we set up a discretionary trust before purchasing the property and buy it through the trust. Would we save on stamp duty. My wife and I want to leave assets to our children and grandchildren. We are UK domiciled.


Thank You. EW.

Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

Even buying it through the trust you would still have to pay SDLT. http://www.hmrc.gov.uk/manuals/sdltmanual/SDLTM20000.htm

This is the HMRC list of all exemptions. Buying through a trust still creates a chargeable transaction.

Is the only reason for the trust to protect your assets or avoid tax?

I look forward to hearing from you.

Kind regards

AJ
Alex J., Litigator
Category: UK Law
Satisfied Customers: 2466
Experience: LLB, LPC, DELF
Alex J. and other UK Law Specialists are ready to help you
Customer: replied 1 year ago.

The main reason for considering setting up a trust was to pass on as much of our assets to our children and grandchildren when we die. We were probably under the mistaken impression that if we initially purchased the house in a trust that this would mitigate the amount of stamp duty we would have to pay?

Expert:  Alex J. replied 1 year ago.
Hi

Thank you for your kind feedback.

Do you have any other assets? What is the likely total value of your estate?

Kind regards

AJ
Customer: replied 1 year ago.

Possibly c£2,000,000 for both my wife and myself.

Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

Is your main concern general tax planning or are you solely looking to avoid SDLT?

Kind regards

AJ
Customer: replied 1 year ago.

At this stage mitigating SDLT.

Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

I am afraid a trust still has to pay SDLT. There are some transactions that can avoid SDLT whereby the trust enters into a simultaneous contract to sell but you would have to take specialist tax advice and there is no guarantee the arrangement would work.

I am afraid it is beyond the scope of this site to discuss SDLT saving schemes.

I happy to discuss any thing further in relation to discretionary trusts?

Kind regards

AJ

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