What is a 'settlement' under Schedule 18 of the Land and Buildings Transaction Tax (Scotland) Act 2013?

Under paragraph 21 of Schedule 18, a 'settlement' means any trust that is not a bare trust. This includes discretionary trusts, life interest trusts, and accumulation trusts where trustees hold active duties and discretions, and beneficiaries may not have an immediate absolute right to the trust property.

How does a bare trust differ from a settlement for LBTT purposes?

A bare trust is a simple arrangement where the trustee holds legal title but has no active duties, and the beneficiary retains full control with the absolute right to direct the trustee. Transactions involving bare trusts are treated as though the beneficiary acted directly, whereas settlements are subject to specific LBTT provisions recognising the trustees' role.

Why does the distinction between bare trusts and settlements matter for LBTT?

The distinction matters because bare trusts and settlements are subject to different LBTT rules. Bare trust transactions are treated as direct actions by the beneficiary, while settlement transactions follow specific provisions acknowledging trustees' active duties and discretions and the more complex nature of the trust arrangement.

Can a discretionary trust holding Scottish property be classified as a settlement under LBTT?

Yes. A discretionary trust where trustees have discretion over property management and beneficiary entitlements is not a bare trust. It therefore falls within the definition of a 'settlement' under Schedule 18 paragraph 21, and specific LBTT rules for settlements apply to any land transactions carried out by the trustees.

Land and Buildings Transaction Tax (Scotland) Act 2013 Schedule 18 paragraph 21

Definition of "settlement"

Paragraph 21 of Schedule 18 defines the term "settlement" as used throughout the schedule dealing with transactions involving trusts.

A "settlement" is defined as a trust that is not a bare trust.
A bare trust is one where the trustee holds property on behalf of a beneficiary who has the absolute right to the property and to direct the trustee.
This distinction matters because bare trusts and settlements are treated differently for LBTT purposes elsewhere in the schedule.
This definition applies wherever the word "settlement" appears in Schedule 18.

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