Stamp Duty Land Tax and buying a UK home: the impact of a ‘usufruct’

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31st July 2023

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, as well as the risks to the conveyancer 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 a UK home. On the face of it, the Higher Rate of SDLT (3%) must also be paid because of the child’s interest in their parents’ home. Due to the risks faced by the conveyancing solicitors, the default position is to complete the SDLT return, showing the Higher Rate being due. However, it is possible to conclude that the ‘usufructuary’ is in fact the owner of the other 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 £30,000 per £1m purchase price.

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.

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