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16:59 PM, 29th March 2018, About 6 years ago 25
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A little known amendment to Stamp Duty Policy in the Autumn Budget 2017 could help 1,000’s of small landlords in regards to their tax planning.
The changes were billed as “Minor Amendments” and were overlooked by many landlords and their accountants who believed the changes wouldn’t affect them.
HOWEVER, the new rules confirm that the additional 3% of Stamp Duty does not apply to transfers between spouses. For landlords who wish to share beneficial ownership with spouses for tax planning purposes this is extremely welcome news, particularly for landlords whose properties are mortgaged.
Here’s an example:-
Mrs X is a higher rate tax-payer. She has one rental property in her own name; an HMO worth £300,000 which produces £10,000 of net profit after deducting £10,000 of mortgage interest and £10,000 of other expenses.
However, as a result of the restrictions on finance cost relief, in the 2017/18 tax year she will pay tax 40% tax on £12,500 and get a tax credit of 20% of the extra £2,500 of disallowed interest. The result is £4,500 of income tax.
It gets worse, in fact MUCH worse.
In the 2018/19 tax year she will pay tax 40% tax on £15,000 and get a tax credit on 20% of the extra £5,000 of disallowed interest. The result is £5,000 of income tax.
In the 2019/20 tax year she will pay tax 40% tax on £17,500 and get a tax credit on 20% on the extra £7,500 of disallowed interest. The result is £5,500 of income tax.
And in the 2020/21 tax year and thereafter she will pay tax 40% tax on £20,000 of profit and get a tax credit of 20% of the extra £10,000 of disallowed interest. The result is £6,000 of income tax.
The good news is that, because her wife has no income at all, there is a tax planning opportunity to transfer the beneficial interest in her property to her wife without having to refinance. On that basis, the whole of the £10,000 of profit will be tax free and her wife will be completely unaffected by the restrictions on finance cost relief. There is no CGT on transfers between spouses, but there is Stamp Duty if there is a mortgage because mortgages are are deemed to be a consideration on the basis that a liability cannot be gifted according to HMRC rules – see example 2 on the HMRC website via THIS LINK.
Prior to the change of policy, the maximum consideration which could be transferred to a spouse without incurring the additional rate of Stamp Duty was £40,000. However, following the change there is no additional rate of Stamp Duty payable on transfers between spouses at all. The normal rate of Stamp Duty ONLY becomes payable if the mortgage consideration exceeds £125,000.
Every situation is different, so we do recommend a consultation first, for which we charge a fixed fee of £400. Consultations come with a guarantee of total satisfaction or a full refund, so if it transpires that we cannot save you money you can request a full refund. This means you will have spent nothing, but your time investigating your options. All recommendations we make are checked by Mark Smith, Head of Chambers at Cotswold Barristers. If he agrees with our recommendations he will adopt them as his own professional advice if you instruct him to complete the legal work for you.
The new Policy can be downloaded from the HMRC website via THIS LINK.
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FOX30
20:00 PM, 5th April 2018, About 6 years ago
Hi Mark in July 2017 we moved out of our residential home which was mortgaged on a residential basis, we bought another property which was a buy to let in the process I shared equity on this additional property with wife the new mortgage for this was £620,000.00 therefore the lending consideration was £310,000 for the purposes of SDLT which at the time meant that I paid out £14.800 , my question is if the thresholds changed to the following;
Mortgage value transferred up to £125,000 0%
The next £125,000 (the portion from £125,001 to £250,000) 2%
= £ 2,500 due
The next £675,000 (the portion from £250,001 to £925,000) 5%
= £ 3.000 due
Total of £ 5,500 due
Am I able to get a refund from HMRC for the difference I paid of £ 9,300 ?
Thanks I’m advance !
Mark Alexander - Founder of Property118
20:57 PM, 5th April 2018, About 6 years ago
Reply to the comment left by JPB at 05/04/2018 - 20:00
I don't think you will be able to get a refund of Stamp Duty on the basis that your transaction pre-dated the Chancellors Autumn Budget. Sorry 🙁
FOX30
21:10 PM, 5th April 2018, About 6 years ago
Reply to the comment left by Mark Alexander at 05/04/2018 - 20:57
Thanks, we remortgaged our residential property on a BTL basis and rented it out and during that process we took out equity from our former home, that equity was used to purchase a new property for BTL purposes which also attracted the higher stamp duty rates of £ 56,200 at that time. We decided to live with relatives and rent all the properties. In essence we came off residential basis and ended up with two BTL properties, I know the 3 year period scenario for refunds on SDLT may kick in if we buy a new residential or decide to pay off or remortgage into a residential mortgage of one of our BTL properties and live in it, however is there anyway we can claim anything back now based on the fact that none of our properties are our main residence ?
Mark Alexander - Founder of Property118
21:13 PM, 5th April 2018, About 6 years ago
Reply to the comment left by JPB at 05/04/2018 - 21:10
Sorry but I don't think there is.
FOX30
21:21 PM, 5th April 2018, About 6 years ago
Reply to the comment left by Mark Alexander at 05/04/2018 - 21:13
If we sell our original home which is now currently BTL before the three year period is over and redeem the second home which we bought as a BTL and declare it as our main residence, can we reclaim back the extra 3% we paid ?
Also what if any CGT liability will arise ?
Mark Alexander - Founder of Property118
21:24 PM, 5th April 2018, About 6 years ago
Reply to the comment left by JPB at 05/04/2018 - 21:21
I don't know the answer to your first question.
In regards to CGT, if you sell your original home within 18 months there will be no CGT payable.
For more complex calculations please see the link below.
https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/
Ridvan xhakaj
10:41 AM, 7th April 2018, About 6 years ago
Hi Mark
thanks for the above info
relating to the case below - I called Hmrc and gave the figures below and the stld amount they worked out was over £6000 when I mentioned (November amendments to the stld) I was told that we will not profit from the amendment as we are talking Buy to let and the amendment was for Residential properties only.
(Am in the process of adding my wife on to a buy to let that i own on my sole name.
the outstanding mortgage at the moment is £160.000
am borrowing an extra £20.000 so once her name in the deed we will have an outstanding mortgage of £180.000
Deed of trust completed 99% in my spouses favour as tenants in common so she will take over 99% ofthe mortgage.
i own 2no buy to lets and have my name on a joint residential with my brother purchased in 2007 (technically i do not own any percentage on the joint Residential its just matter of time before i take my name out)
am trying to work out the Stld my spouse is due to pay on this transaction and i come up with a high figure of over 6k, a well know accountant reckons should be just over £1000, while my Conveyncer is adamant the stld amount is £2420
kind regards
Mark Alexander - Founder of Property118
11:18 AM, 7th April 2018, About 6 years ago
Reply to the comment left by Ridvan xhakaj at 07/04/2018 - 10:41
HMRC helpline have misinterpreted their own Policy. You’re dealing with people, it happens.
I have published links to HMRC policy and their manuals in my comments above.
If you would like us to advise please book a consultation.
Landlord77
21:11 PM, 29th April 2018, About 6 years ago
Hi Mark
Im currently transferring 50% of my BTL property to my wife (as mentioned by landlord77 above). I told my conveyancer about the new amendment and he (and his colleagues) say that the additional 3% Stamp Duty is still due. I have sent this thread and the HMRC link but is there anything else I should say? My concern is that they inputted my details into the HMRC SDLT calculator and it didnt spit out the figures per the new amendment. I guess i shoulld call HMRC and specifically ask the question as my conveyance has said that I can pay the Stamp duty directly to HMRC rather than through them
FOX30
21:58 PM, 29th April 2018, About 6 years ago
Hi Landlord 77, if you have a mortgage on the property then the following SDLT rates will apply between spouses :
Mortgage value transferred up to £125,000
0%
The next £125,000 (the portion from £125,001 to £250,000)
2%
The next £675,000 (the portion from £250,001 to £925,000)
5%
Hope this helps !