News | September 20, 2023

Usufructs and UK Stamp Duty Land Tax

Usufructs are a common form of ownership in France, Spain, Italy, Germany and other civil law countries. They allow a person to occupy a property and receive income, usually for their lifetime. Another person has a right to receive the property after the first interest ends. Names for these arrangements include usufruit, usufructo, usufrutto, and Nießbrauch.

The tax when buying a property in the UK is Stamp Duty Land Tax (“SDLT”). SDLT rates can be higher, where a person owns another home anywhere in the world, or is not resident in the UK. A 3% additional rate generally applies to buyers of second homes. First-time buyers who have never owned a home enjoy special rates. Therefore, it is important to consider whether a usufruct means that one is considered to own another home, or not be a first-time buyer. 

Will usufructs always incur the 3% and first-time buyers rates?

Possibly not. Depending on the circumstances, some usufruct arrangements may not count as owning a home, with the result that the 3% additional rate does not apply, or the first-time buyer rate does apply. 

If applicable, the savings can be significant for homes of all prices. For example, if a property is worth £750,000, the saving might be £22,500.

What should I do if I am buying a property?

If you are buying a property and are party to a usufruct arrangement, specialist tax advice should be sought. 

This article should not be relied upon, as the terms of usufructs can differ, which can affect their tax treatment. The tax treatment can be affected by your role under the arrangement (usufructuary or bare owner). The rights and obligations under each document need to be analysed on a case-by-case basis. Taking specialist tax advice can help demonstrate reasonable conduct to the UK tax authority, HMRC, if relevant.