SDLT on beneficial transfer to spouse – No mortgage – Want To Utilise Both CGT Annual Exemption Allowances on Sale

by Readers Question

6:41 AM, 8th June 2017
About 2 years ago

SDLT on beneficial transfer to spouse – No mortgage – Want To Utilise Both CGT Annual Exemption Allowances on Sale

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SDLT on beneficial transfer to spouse – No mortgage – Want To Utilise Both CGT Annual Exemption Allowances on Sale

I’ve been looking at whats been said on this already and I’m a bit confused. Let me describe my scenario.

My wife has a property, gifted to her in her name, bought a couple of years ago for £285k. She now wants to sell. Its value is £320k. We have other rental properties owned jointly and are both higher rate taxpayers. Neither of us have used our CGT allowance.

There is no mortgage. The property is in her sole name. If she sold it outright, the gain would be £35k – the CGT allowance of £11.5k = £23.5K total gain on which she would pay 28% CGT as I understand it, which equates to £6.58k

Here’s the question: Could she transfer, for example, by benefical gift, half of the property to me (value of £160k). My understanding is that there is no CGT on transfer between spouses.

However is there any SDLT to pay. One article I have just been reading on this forum says there is no SDLT to pay. Another article seems to suggest there is (due to transfer of assets, by gift or whatever).

Would this be the best way of doing it, we are in the process of selling the property now, so we were thinking of beneficial transfer of 50% of the value to me (of course – no mortgage on the property): hence

Property therefore now in joint names, Total gain as before, being £35k – 2 CGT allowance (£23k) = joint gain now of £12k. Hence CGT payable by each of us is 28% of this which is £3.36k each.

In addition I have some EIS investments which would allow me to defer the £3.36k payable for3 years anyway.

The question, here is, do we have SDLT to pay and if so would it be better to
1) Dispose of the property in my wife’s name and leave things as they are and pay the CGT or
2) Transfer via gift 50% of the property value to me and carry on this other route. It all depends on whether there is SDLT to pay on the transfer to me and whether this is more than the CGT payable in 1)

My confusion is about the SDLT – whether this is payable or not.

Thanks for any replies.

Ivan



Comments

Mark Alexander

6:45 AM, 8th June 2017
About 2 years ago

Hi Ivan

You are right about there being no CGT on transfers between spouses.

SDLT is only payable if there is a consideration. We would recommend the Declaration of Trust is drafted to transfer 50% of beneficial ownership as a gift.

The only time there is SDLT payable is when there is a mortgage. This is because HMRC’s view is that the mortgage as a consideration. In your case there isn’t a mortgage, hence there is no SDLT.

Mike Woodfine (Admin and Compliance Director of Property118 Limited) can assist you to prepare the necessary paperwork for a fee of £250 + VAT, including searches and all other disbursements. Searches are required for compliance purposes; at least in part to determine there are no mortgages which would constitute a reportable consideration for SDLT purposes.

If you would like to proceed on that basis he will require the following:-

1. The full postal address of the property
2. Scanned proof of identity (passport or driving licence) for you and your wife
3. Scanned proof of address dated within the last three months (utility bill or bank statement will suffice) for you and your wife
4. The name address and occupation of the person who will sign the Deed as your witness. This doesn’t have to be a professional, but cannot be a family member.

On receipt of the above Property118 Limited would raise an invoice for the work.

On receipt of payment the Declaration of Trust will be emailed to you in PDF format. It’s then simply a case of having it signed and presenting it to your conveyancing solicitor dealing with the sale. There is no requirement to register the Declaration of Trust with HM Land Registry.
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Ivan Ratnayake

10:37 AM, 8th June 2017
About 2 years ago

Dear Mark,

Thanks for that. By way of clarification though, can I confirm details about ownership once the beneficial trust transaction is done so we can advise the Conveyancer.

At present the property is in my wife's name. As a result of the Trust Transfer does the property now become held in joint names (and so both of us now become the sellers) or does the Conveyancer carry on with the sale of the property in my wife's name alone - being the sole seller - and the ownership is simply held in trust for HMRC purposes

Apologies for being not very bright on this issue.

Thanks

Ivan

Mark Alexander

10:52 AM, 8th June 2017
About 2 years ago

Reply to the comment left by "Ivan Ratnayake" at "08/06/2017 - 10:37":

Hi Ivan

The legal ownership will continue to belong to your wife exclusively.

However, HMRC tax beneficial ownership, hence the value of the Declaration of Trust.

The sale can proceed as it is.

Your conveyancing solicitor will know exactly what to do when you present the completed Declaration of Trust deed to her.
.

Ivan Ratnayake

10:14 AM, 9th June 2017
About 2 years ago

Thanks for that. This is now getting a bit embarrassing: I love your line above "the conveyancing solicitor will know exactly what to do when you present the completed Declaration of Trust deed to her"

I've just checked and apparently the conveyancer (not sure its a Solicitor or not - as I'm not handling the sale) does not know what to do with the Trust Deed. I am not sure how to advise them myself from there.

Am I right in thinking the following is true:

Once the Trust Deed is done and I am the Beneficial Owner of 50% of the Property, the property sale continues in my wife's name as you mentioned above.

A Trust is created before the sale making me a Beneficiary owner of a 50% interest in the Property. Presumably the buyer does not need to know anything about this neither does their Solicitor.

The transaction does not need to go to Land Registry as there is no change of title (only change of Beneficiary)

The Trust wrapper is just used as a requisite to allow the exempt allowance for my wife and me.

Does the Trust need to be logged with the HMRC?

It seems that the above transaction is beyond what this Conveyancer can do.
You have kindly quoted me £250 + VAT for the Trust Deed. Do you know anyone - Conveyancer or otherwise who does know what they are doing and can sort out the Trust Deed and then continue the Sale from there to complete asap and tidy up the loose ends? Is so, do you know the timescales and prices?

Thanks

Ivan
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Mark Alexander

10:29 AM, 9th June 2017
About 2 years ago

Reply to the comment left by "Ivan Ratnayake" at "09/06/2017 - 10:14":

Hi Ivan

Your understanding is correct.

We will deal with the legal aspects of making sure you have the correct documentation for the price we have quoted, I.e. £250 + VAT.

You MAY record a restriction in regards to the Declaration of Trust at HM Land Registry but this is optional and changes nothing, hence there is no need to bother. The only benefit of doing so would be to protect your own interests long term if you were keeping the property. For example, if you retained the property and your wife left you she could then not sell it or remortgage it without your consent. This scenario is not applicable to you. I am only mentioning it for the benefit of others reading this thread.

When you both complete your tax returns you will both declare 50% of the gains, make a note of what was done and if you wish you could even attached the Declaration of Trust as evidence of the tax planning you have done.

By all means check the above with your local tax inspector but I can assure you that everything we have discussed is completely above board.
.

Ann Sheehan

0:48 AM, 10th June 2017
About 2 years ago

Hi,

I am in a similar position but there is a mortgage. Property value 750k, mortgage, 500k

Can i give a share of the equity away as a gift via a trust deed, does this avoid any stamp duty, and would you be happy to prepare the deed again for £250. NB we are both 40% tax payers just want to use up both our annual allowances.

Thanks

Ann

Mark Alexander

6:35 AM, 10th June 2017
About 2 years ago

Reply to the comment left by "Ann Sheehan" at "10/06/2017 - 00:48":

Hello Ann

Are you also selling? If not and you are doing this for other tax planning purposes then you might be better off forming a partnership. Please see the link below.

https://www.property118.com/setting-property-partnership/99537/

Assuming a sale is imminent please see below.

Would you be gifting the equity to your husband? The reason I ask is that this would only work between spouses.
.

H B

8:17 AM, 10th June 2017
About 2 years ago

Mark, can you clarify why the gift should be done through a declaration of trust? What benefit would there be over actually gifting half the property in the standard way?

Mark Alexander

8:21 AM, 10th June 2017
About 2 years ago

Reply to the comment left by "H B" at "10/06/2017 - 08:17":

I'm not entirely sure what you mean when you say "the standard way".

If you mean full conveyancing and changing the legal title, that is typically a lot more expensive. Especially so when a mortgage is involved as it generally involves refinancing and all of the costs associated with that.

A Declaration of Trust is not only cheaper, it is also much easier and quicker to deal with.

For these reasons, use of a Declaration of Trust is "the standard way" so far as we are concerned.
.

H B

13:00 PM, 10th June 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "10/06/2017 - 08:21":

By standard way, I meant gifting half the property by deed of gift and updating the land registry, rather than an alternative a deed of trust.

Obviously if the trust method works and is cheaper, it may be the better option.

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