Transfer of Equity and SDLT

Posted By: on 13th December 2018 | Category: Residential Property

Stamp Duty Land Tax (SDLT) liability is something house buyers are all too aware of. However, what often comes as a surprise is that SDLT may be payable if you acquire a share in a property by way of a “Transfer of Equity” even in a situation where no money or consideration is payable.

A Transfer of Equity is where there is a change in the co-ownership status of a property. For example:

  • you add a spouse to take advantage of Capital Gains Tax or
  • you remove an ex-partner if you have divorced or ended a civil partnership or
  • you transfer property to or from a company

SDLT is payable on the “chargeable consideration” of a property transaction but this term includes more than just money passing from one party to the other. A mortgage is chargeable consideration too. If there is a transfer of equity subject to an existing mortgage SDLT may be payable depending on the amount of the outstanding mortgage even though no money is changing hands. It will depend on whether or not the amount of debt taken on is below the current SDLT threshold.

https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

Take the following situation as an example. Mr Smith owns a house valued at £500,000 and he transfers 50% of the title to Mrs Smith (as they have just got married). There is a mortgage of £250,000 secured over the house, Mrs Smith will be deemed to take 50% of that debt (£125,000). Whether or not Mrs Smith will be liable for SDLT will depend on whether she owns another residential property as different rules apply.

  • If the house she now owns with Mr Smith is her only residential property she will not be liable for SDLT as the current threshold is £125,000.
  • If Mrs Smith already owns another residential property then her liability will be calculated at the higher rate which means that SDLT (£3,750 currently) will be payable.

If a person is being removed from the title to the property, SDLT may also be payable. For example, Mr Jones and Mr Roberts are friends who purchased a flat together. Mr Roberts wishes to be removed from the title. The flat is valued at £400,000 and there is an outstanding mortgage of £200,000. Mr Jones has agreed to pay £100,000 to Mr Roberts for his share in the flat and take over the mortgage too.

  • Half the mortgage (£100,000) plus the £100,000 consideration takes the total chargeable consideration to £200,000 which (currently) means that SDLT liability would be payable by Mr Jones.
  • If the flat is not his home and Mr Jones owns another residential property his liability would be calculated at the higher rate of SDLT.

SDLT is not always payable but it is important that you are aware that it is a possibility.

If you are considering adding or removing someone from the title to your property please contact us on conveyancing@coolebevisllp.com to find out how we can help.

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