Rayner Stamp Duty Mistake Highlights Tax and Vulnerable Persons Trust Advice Needs

Much has been written about the mistake made on the stamp duty payment by former Deputy Prime Minister, Angela Rayner.  Whether you like Labour’s policies on taxation and government spending on the NHS, Social services and more or not, is not for us to comment on.  Whether you like Ms Rayner, whether you have met her or not, that too is not for us to comment on.

What we will say is it cannot be pleasant having your private life and the lives of your children ‘dragged’ through the press. 

Equally, by receiving incorrect guidance or advice (whichever it was) before buying and making the fatal error of not taking professional tax and trust advice and not talking to HMRC first, resulting in needing to resign your job, is equally unpleasant.

We have not seen the wording of the trust, nor the written advice or guidance before the purchase, but it highlights when you are putting assets in trust, you need to take professional counsel or advice from a tax and trust specialist.  We saw a similar position with a new client many years ago that had set up a trust whilst they were living overseas and then returned to the UK, meaning huge tax liabilities on the trust when we had suggested, right at the start that they should not return to the UK, but they did so without our knowledge and without letting us see the trust wording or amending the wording to ensure no additional tax liabilities in the UK.

Whilst this is speculation, we make the following ‘guestimate’ as to what may have happened (and even if incorrect, it demonstrates how easily we can all fall foul of Tax Law):

• Ms Rayner divorces and an agreement is reached to put the marital home in trust (full or in part) to protect her disabled son.  We suggest this was likely to be a special Vulnerable Persons Trust, which is ideal for protecting disabled people and their future wealth with excellent tax breaks to help them throughout life.
• We understand that the trust then bought out Ms Rayner’s final share meaning she thought she had no further interest in the marital home and believing that she was buying her new home on the South Coast as her only property i.e., normal stamp duty rates should apply.
• Vulnerable Person’s Trust: the beneficiary must be a disabled person, (physically or mentally) or a bereaved minor (under 18, with a deceased parent) and unable to manage their own affairs.
• A disabled person is one who receives disability benefits such as  Disability Living Allowance (DLA) and Personal Independence Payments (PIP).
• The trust gets special tax treatment if it is primarily for the benefit of the vulnerable person and is limited for other beneficiaries e.g., other able bodied children.
• Vulnerable Persons Trusts have trustees, e.g., a parent but they are not deemed as in direct control of the property inside the trust meaning they could buy another property and pay normal stamp duty rates.
• The problem may have occurred if the trust was not registered as a Vulnerable Persons Trust or it failed or lost its qualification as a Vulnerable Persons Trust as other beneficiaries e.g., other children had significant or even equivalent interests in the trust or even if the trust wording was flawed.
• If it fails as a Vulnerable Persons Trust and there are other able bodied minors (children aged under 18 years) as beneficiaries, then the parent (as a trustee) is deemed as having direct control of the property in the trust. 
• If there are beneficiaries who are not vulnerable, the assets and income for the vulnerable beneficiary must be: identified and kept separate from those reserved for the vulnerable pesron and only that part of the trust gets special tax treatment.  If this was not clear, or indeed the property within the trust was not specific in parcelling off under multiple ‘tenants in common’ shares then the whole vulnerable persons trust fails.
• This means that buying another property on the South Coast would technically now be a second home and subject to higher rates of stamp duty and also penalties for late payment of the same.

Comment

Tax, trusts and assets are complex.  You should always:

• Take advice from a tax and trusts specialist such as ourselves.
• Both you and your adviser should always talk openly with HMRC to get a final decision from them before taking action.
• HMRC are not ‘ogres’, they are there to enforce tax law as legislated by Government.
• HMRC suggests ‘ignorance is no defence’, if you have not taken professional advice and also then spoken with HMRC specifically about your trust and planned actions, despite how difficult this may be to get a written decsion from them, then you must accept the consequences.