New SDLT Rules Can Help Smaller Landlords

by Mark Alexander

16:59 PM, 29th March 2018
About 2 years ago

New SDLT Rules Can Help Smaller Landlords

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New SDLT Rules Can Help Smaller Landlords

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.

What this means is that transfers of beneficial interest between spouses are now significantly more affordable. Best of all, the legal work only costs £250 + VAT per property.

In the example above, fees of £700 would result in tax savings of £16,500 over the next three years alone!

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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Comments

Mark Alexander

9:55 AM, 30th April 2018
About 2 years ago

Reply to the comment left by Landlord77 at 29/04/2018 - 21:11
I think that's a 'cop-out' by your solicitors.

You have sent them the Government Policy document which I provided you a link to. They should be representing you fairly.

Landlord77

23:19 PM, 6th May 2018
About 2 years ago

Reply to the comment left by Mark Alexander at 30/04/2018 - 09:55
Thanks mark. Called HMRC and they confirmed your excellent article.

My solicitor is refusing to budge so I will pay directly and will charge me £90 for them to not to pay Stamp Duty (they call it a stamp duty processing fee. not sure what for and have queried it) Am very annoyed that they nearly cost me alot of money as they didnt keep up to speed with SDLT rules. wonder how many other SDLT miscalculations they make. grrr but thank you again

Mark Alexander

6:22 AM, 7th May 2018
About 2 years ago

Reply to the comment left by Landlord77 at 06/05/2018 - 23:19
I would report that conduct to SRA if I were you.

Landlord77

23:13 PM, 22nd May 2018
About 2 years ago

HI Mark

I am trying to pay my SDLT after the transfer of 50% of my BTL property to my wife (as my solicitor refused to acknowledge the reduced stamp duty %). Does this need to come from me or from my wife who is receiving 50% of the property or does it not matter as we are a married couple.

I don't mind paying a fee for a conveyancer to pay it , is this something that your company does? or can I just ask a conveyancer to complete (my conveyancer will not do it despite me confirming with HMRC that they are wrong)

Mark Alexander

5:37 AM, 23rd May 2018
About 2 years ago

Reply to the comment left by Landlord77 at 22/05/2018 - 23:13
Property118 cannot deal with this for you as a stand-alone arrangement.

My suggestions are as follows:-

1) formally complain to your solicitor in writing for holding up the deal and tell them if it’s not sorted within X days you will escalate your complaint to their regulators
2) Contact the HMRC Stamp Duty Office directly. I think they made be able to accept payment from you directly
3) Contact your accountants to see if they can help
4) Contact Mark Smith at Cotswold Barristers next week when he returns from holiday. He can sort this for you but that would be like using a sledgehammer to crack a nut and wouldnt be cheap. My best guess is is £400 to £800 as this would be two to four hours work for him by the time he has understood your case and dealt with compulsory new client money laundering checks etc. the actual filing of the SDLT forms is something he could do online for you in about 15 minutes but he is compelled to do all the other due diligence to understand your case first.

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