Do we need to pay SDLT changing to tenants in common?

by Readers Question

3 months ago

Do we need to pay SDLT changing to tenants in common?

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Do we need to pay SDLT changing to tenants in common?

I am quite confused with SDLT tax. Here is our situation,

My wife and I own two buy to let properties (50:50 split joint tenant) at the moment. I am thinking of changing to tenants in common with 99:1 split.

The mortgage on each property is quite low (one is 54k, another one is 46k). So if my wife owns 99% of both, the transaction on each property is lower than 40k (one is 27k another is 23k).

In this case, does she still need to pay SDLT? I read that the 3% surcharge is for over 40k, but I am not really sure if the 40k is for each transaction or some different way to calculate?

Many Thanks

Jerry

Comments

Neil Patterson

3 months ago

Hi Jerry,

There is no CGT on transfers between spouses.

There is also no SDLT if there is no mortgage, because no consideration is deemed to be transferred.

However, if there is a mortgage on the property there is SDLT payable on the value of the mortgage liability transferred if the value of the transfer exceeds £40,000 but that is the threshold per property transfer as long as the transfers are deemed to be linked.

This is a regulated transaction so you need to take specific advice from a qualified and regulated lawyer.

Please also see our main tax planning page with case studies and downloads available >> https://www.property118.com/tax/

Kate Mellor

3 months ago

It looks as though this is going to hinge on the regulations relating to linked transactions. Have a read up on Linked Transactions on the HMRC website and read through the examples given. As Neil says, if there are mortgages on the properties the value of the mortgage our wife is taking over from you will been deemed as payment. The crux will be whether the 'payment' (consideration) is calculated per property, in which case as you mention, each transaction falls beneath the 40K threshold, or as one transaction in which case you will be around £9,500 above the cutoff and will be hit for the 3% SDLT. If this turns out to be the case, perhaps you could find a way to pay down the mortgage to below the relevant level prior to the transaction.

CazT

3 months ago

Hi Neil, greetings from sunny Spain! This discussion is very interesting - we only have two rental properties now and they are held in 50/50 Tenants in common. However, the tax return has only ever been done in my name, as advised by my accountant. Now we are both retired, should I do anything to address/change this, especially as we are no longer resident, or should I let sleeping dogs lie?

J C

3 months ago

Since we are on the topic of tenant in common, why does the split normally goes for 99% and 1%. I know investors that does 100% to 0% tenant in common split. Why don't more people do the same?

CazT

3 months ago

Reply to the comment left by J C at 12/01/2018 - 14:48
I wasn’t aware you could do it that way! Can anyone else confirm please?

Kate Mellor

3 months ago

Just a stab in the dark, but if you’re sharing ownership of a property with someone surely you each have to own an actual percentage? As in the proportion owned by each owner has to be greater than nothing...I’ve never owned property in anything other than equal shares though, so it’s not something I know anything about, it just seems logical.

Ian Narbeth

3 months ago

Reply to the comment left by J C at 12/01/2018 - 14:48
I think it is so that income came be shared between the parties, possibly in different percentages.

A 0% share is nothing and the party with it has no beneficial interest.


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Tenants should be held accountable for criminal damage