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Purchasing a Property in Trust

Ensuring that a disabled or vulnerable family member has long term, secure and suitable housing is a key concern for many families. Purchasing a property through a trust can offer an effective way to provide stability and protection, while maintaining the flexibility to adapt to the beneficiary’s needs over the long term.

This guide explains how buying a property within a trust arrangement works in practice, the types of trusts commonly used and the key responsibilities of the Trustees.  It also outlines the financial, legal and tax considerations that families should understand to ensure informed decisions are made about a loved one’s future.

Benefits of holding a property in a trust

For some people, it may not be appropriate for them to own a property outright and, in those circumstances, purchasing a property through a trust can provide a practical and secure alternative.

The significant benefit of owning a property in a trust is that it allows the Trustees to hold and manage the property to be used by the beneficiary.  The Trustees will have power to allow the beneficiary to live there for as long as they consider appropriate.  This can be particularly important for a disabled or vulnerable beneficiary who may struggle with the responsibilities of home ownership or may lack the mental capacity to manage a property independently.

A trust structure also helps protect the property from being sold or misused, as decisions are made collectively by the Trustees and must be in the beneficiary’s best interests. This provides long term security and the flexibility to adapt arrangements as the beneficiary’s circumstances change.

The use of a trust can also preserve a beneficiary’s entitlement to means-tested benefits or Local Authority funding. As the property is owned by the trust rather than the individual, it will not count as capital and is excluded from financial assessments.  Should the property be rented out or sold in future, any rental income or sale proceeds can continue to be held in the trust, avoiding any direct impact on the beneficiary’s personal financial situation.

Choosing the right type of trust

Although several types of trust can hold a property as a trust asset, the most common types of trust to provide for a disabled or vulnerable person are:

Disabled Person’s Trust (DPT)

A Disabled Person’s Trust, also known as a Vulnerable Person’s Trust, is specifically used to benefit someone who is disabled or vulnerable and can offer tax advantages when certain conditions are met.

Discretionary Trust (DT)

A Discretionary Trust may be more suitable where flexibility is needed, particularly where multiple beneficiaries are being provided for. It does not benefit from the same favourable tax treatment as a DPT.

The choice on which type of trust will depend on a number of factors including the beneficiary’s housing needs, whether anyone else will live in the property, the value of the property being purchased, the value of other assets held within the trust and the potential future needs of the beneficiary.

If an existing trust is in place, the Trustees should confirm that the trust deed gives them powers to purchase and maintain a property.  This includes powers to make repairs, adaptations and to buy and sell property if the beneficiary needs to relocate.

Where a new trust is being created, it is crucial to ensure that the trust deed is drafted with sufficient flexibility to meet the current and future needs of the beneficiary.  This should include powers for the Trustees to acquire, manage, adapt and dispose of property, ensuring they can respond effectively as circumstances change.

Funding options for the purchase

A trust must have sufficient funds to complete the purchase.  These can come from:

• Existing trust assets
• Gifts from individuals
• Inheritance left to the trust
• Personal injury compensation which can sometimes be placed into trust

The Trustees may also have power to borrow funds, although traditional mortgages can be difficult to obtain as lenders are reluctant to lend to trusts.

A beneficiary may be able to contribute funds to the trust; however, doing so may affect their tax position or eligibility for benefits or funding, so specialist advice is important.

In addition to the purchase price, Trustees must plan for additional costs including conveyancing fees, survey, insurance, adaptations and moving expenses.

Finally, it is important that Trustees instruct a conveyancer with experience in trust transactions.  This ensures that the correct procedures are followed and the property ownership is properly recorded with HM Land Registry.

Tax considerations

The tax treatment of purchasing a property will depend on the type of trust used.  Trustees should always seek specialist tax advice on:

Stamp Duty Land Tax (SDLT)

SDLT can vary depending on the trust structure and early advice on this is essential.

Inheritance Tax

This is relevant when funds are gifted to the trust and can be relevant on the occurrence of certain events, such as gifting assets to a beneficiary or winding up the trust. Understanding these implications helps families plan effectively and avoid unintended tax consequences.

Income Tax and Capital Gains Tax (CGT)

If the property is rented out in future, then Income Tax may be due on the rental income.  Similarly, if the property is sold or transferred, any increase in value since purchase may trigger a CGT liability.

Different trust types attract different tax rates and allowances so tailored advice is essential.

Trustees’ duties and ongoing responsibilities

The Trustees must consider the needs of any beneficiaries and make decisions together.  When purchasing and managing a property, their responsibilities extend beyond the initial acquisition.  Trustees must ensure that the property is:

• suitable for the beneficiary’s needs – accessibility, adaptability, long-term suitability
• close to services and support networks for the beneficiary
• appropriate for the delivery of care, if care providers will be attending the home
• compliant with any leasehold restrictions, if applicable.

Once a property is purchased, the Trustees must make practical decisions about who will live in the property and who is responsible for household bills such as council tax and utilities.

The Trustees must regularly review the needs of any beneficiary and ensure that funds remain available for repairs, maintenance, insurance and service or management charges.

It is essential that the Trustees continue to meet their broader trust management duties and responsibilities.  This includes keeping accurate records and ensuring that the Trust Registration Service (TRS) is kept up to date. Our colleagues at our sister company Renaissance Trust can assist with all aspects of trust administration and compliance, ensuring Trustees meet their regulatory obligations.

Trustees may be in breach of their duties if they fail to comply with the terms of the trust or neglect their responsibilities.  Specialist professional advice will help to ensure full compliance and management of the risks.

How we can help

Purchasing a property through a trust can provide long-term, protected accommodation and offer peace of mind for families supporting a disabled or vulnerable person.  With a carefully selected trust structure, adequate funding, and proactive Trustees who understand their responsibilities, this approach can secure a stable and suitable home for the beneficiary.

Our specialist team can help with all these points. Please do not hesitate to contact us to discuss your specific circumstances in more detail.

We also run a programme of free webinars about Decision Making and Planning for the Future. Learn more about these events and register here.