Care fees planning and stamp duty on second homes

My parents’ Wills set up a trust for the family home to help with care fees planning. Will I have to pay second home stamp duty rates on the purchase of my own property as I am a beneficiary of a property under my parents Will?

This is a question we are asked more frequently these days and to help provide some clarity, we answer it in the form of a fictionalised case study:

Case study

• John and Jane are married with two adult children, Jessica and Thomas
• John and Jane are worried about care fees and the risk of their home being sold to pay for care at some point in the future
• To mitigate the risk around care fees, John and Jane set up mirror Wills that contain a life interest trust. Their Wills leave their half of the property in trust for their children and gives their widow a right to live in the property for life
• Their daughter, Jessica, owns a property in London but is selling that property and will be relocating to York and purchasing a property in the York area
• Jessica is worried that she will be subject to a higher rate of Stamp Duty Land Tax (SDLT) as under her parents’ Wills  she has an interest in their property under a trust

Answer: Despite Jessica having an interest in her parents’ property under the terms of the life interest trusts in their Wills, she will not be subject to second home SDLT rates. This is because the surviving spouse of John and Jane will be treated as the owner of the property as they have a right to occupy the property for life. As Jessica is selling her property which is her sole property (and where she lives) and is replacing this property with one in the York area she will be deemed as the owner of only one property.

When would Jessica be subject to second home SDLT rates?

If Jessica was not selling her property in London but was still purchasing a property in York, she would then own two properties and would be subject to higher SDLT rates.

It is important to note that if Jessica decided to sell her London home within three years of purchasing the property in York, then she should be able to claim the extra stamp duty back.

Once John and Jane have both passed away and Jessica and Thomas inherit the property, Jessica should not be subject to second home SDLT rates at this time. There are however circumstances when second home SDLT rates will apply, and it is therefore important to seek legal advice should you be in this or a similar position.

This area can be complicated and we would recommend that you seek legal advice. Please contact our Private Client Team, who will be able to advise you on your individual circumstances.