Stamp Duty Land Tax And Buying A UK Home: The Impact Of A ‘Usufruct’

Stamp Duty advice was once the domain of conveyancing solicitors, but the introduction of Stamp Duty Land Tax (SDLT) has brought increased complexity and rates, requiring specialists from both the legal and accounting professions to take a closer look.

A particularly unpredictable area involves ‘usufructs’, a concept common in Civil Law jurisdictions, especially in Europe, where parents transfer property to their children (bare owner) while retaining the right to use and enjoy it for life (usufructuary). Issues arise when the bare owner buys UK residential property and must assess the SDLT due.

Each buyer’s SDLT status affects others in joint purchases. Typically, someone with a bare interest under a usufruct faces the Higher Rate of UK SDLT (5% as of Autumn Budget 2024) by default, a position conveyancing solicitors adopt due to risks. However, it can be argued that the usufructuary is the actual owner of the non-UK property, exempting the bare owner from the Higher Rate on UK purchases, potentially saving £50,000 per £1m of purchase price.

Additionally, First Time Buyer’s relief (FTB relief) may apply for UK homes up to £625,000, reducing SDLT to £0-£10,000, but a bare interest under usufruct agreements can prevent access to FTB relief. The legislation for FTB relief differs from the Higher Rates regime, requiring separate review, yet it is possible to conclude FTB relief is available.

Ultimately, everything hinges on the specific terms of the usufruct and bare ownership agreements, as the UK lacks a directly comparable structure, necessitating case-by-case interpretation.

To learn more, click here or contact the private client team at privateclient&trusts@haysmac.com.

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