Stamp Duty advice used to be limited to conveyancing solicitors but, since the introduction of Stamp Duty Land Tax (SDLT) and its ever-increasing complexity and rates, as well as the risks to any adviser of getting it wrong, it has required specialists across both the legal and accounting profession to take a much closer look.
An unpredictable area relates to ‘usufructs’*, which are a commonly used concept in Civil Law jurisdictions (primarily in Europe) for families in relation to real estate. Most commonly, parents give their property to their children (the ‘bare owner’) but retain the right to use/enjoy the property for the rest of their life (the ‘usufructuary’).
An issue arises when the ‘bare owner’ looks to buy any UK residential property and has to assess the SDLT due. It is also important to note that where a property is being acquired by more than one buyer, each buyer’s SDLT status will affect the others.
On the face of it, someone who only has a ‘bare interest’ under a usufruct will be subject to the Higher Rate of UK SDLT (increased to 5% in the Autumn Budget 2024) on the purchase of a UK residential property. Due to the risks faced by the conveyancing solicitors, this is the default position when completing the buyer’s UK SDLT Return (or all SDLT Returns for all buyers where even only a single buyer is affected). However, it is possible to conclude that it is in fact the ‘usufructuary’ who is the ‘owner’ of the non-UK property (for the purposes of this part of the SDLT rules) so the Higher Rate does not in fact apply to the ‘bare owner’ on their UK home purchase.
The savings can be material at £50,000 per £1m of purchase price.
In addition, where a UK home is being acquired for no more than £625,000, “First Time Buyer’s” relief (FTB relief) may be available, which reduces the SDLT to between £0 and £10,000. However, a ‘bare interest’ under a usufruct agreement can prevent access to FTB relief. Strangely, the legislation for FTB relief is entirely different to the Higher Rates regime, which requires a separate review, but it is also possible to conclude that FTB relief is available.
Everything hinges on the specific terms of the usufruct and ‘bare ownership’ agreement because the UK does not have a directly comparable structure, so it must be interpreted on a case-by-case basis.
We have advised a number of clients on this specialist area and if you believe that this is applicable to you, please contact Duncan Cleary or James Walker.
* Pronounced: “yoo-zuh-fruhct”; the term also includes: usufruit, usufructo, usufrutto, Nießbrauch.
