Spouse Property transfers and SDLT?

by Readers Question

9:24 AM, 17th March 2020
About 6 months ago

Spouse Property transfers and SDLT?

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Spouse Property transfers and SDLT?

I am led to believe spouse property transfers are Capital Gains exempt. I also understand if the property transfer is NIL, there is no SDLT payable.

However, if the property is mortgaged, SDLT is payable on the amount of mortgage transferred. i.e. If property is owned 1/99 and you want to transfer 49% making ownership now 50/50. 49% of mortgage would be subject to SDLT.

I understand SDLT additional dwellings does not apply to spouse transfers.

Please correct me if any of the above is incorrect. For example, a £400,000 mortgage @ 49% transfer would be £196,000 transfer, so would attract SDLT of £1,420.

So finally, here’s the question, assuming SDLT is transaction based; Could I transfer 25% today and the remaining 24% tomorrow. Therefore, two transactions each below SDLT £125,000 threshold meaning no SDLT due. This would be achieved by means of Deed of Trust.

I have several properties to transfer, but I am discounting the multiple dwellings relief SDLT as the remaining properties do not attract SDLT, and the multiple dwellings relief has a minimum rate of 1%

Previous ownership structure of 1/99 was used as I was a high earner. This is no longer the case so need to level the playing field for tax purposes.

Previously Form 17 filed with HMRC. I understand as soon as you change legal/beneficiary ownership this nulls Form 17 immediately. Can I then assume I don’t need to file new Form 17 to reinstate the default 50/50 rule, but maybe sensible to note on next Self-Assessment?

Many thanks

Michael


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Comments

Neil Patterson

9:28 AM, 17th March 2020
About 6 months ago

Hi Michael,

Mark Alexander has read your question and I quote:

"I agree with all that has been said, but I recommend a tax consultation because a family partnership within an LLP is likely to offer significantly more flexility, no SDLT whatsoever if structured properly and other commercial advantages and tax planning opportunities."

>> https://www.property118.com/tax/

Seething Landlord

11:57 AM, 17th March 2020
About 6 months ago

Is there a possibility that the two transfers would be regarded as linked transactions and aggregated for sdlt purposes?

michaelwgroves

17:39 PM, 17th March 2020
About 6 months ago

Reply to the comment left by Seething Landlord at 17/03/2020 - 11:57
Good point, I've researched this and found this note on HMRC web site

"Transactions linked as part of a series of transactions
When a sale is followed by one or more related sales, if there’s something to link all the transactions together, they count as linked transactions for SDLT. There’s no limit to the length of time between the transactions."

michaelwgroves

17:53 PM, 17th March 2020
About 6 months ago

Here's a thought, rather than changing Joint owners share to 50/50. What about severance of joint tenancy and registering as tenants in common.
As both owners are now jointly responsible for mortgage, you are not transferring a percentage of mortgage anymore, as you are equally liable for full balance?

michaelwgroves

17:55 PM, 17th March 2020
About 6 months ago

Reply to the comment left by Neil Patterson at 17/03/2020 - 09:28
Mark
This is something I am very interested in, but it's the wrong time for me. Probably in 1-2 years could be the right time.

Seething Landlord

19:56 PM, 17th March 2020
About 6 months ago

Reply to the comment left by michaelwgroves at 17/03/2020 - 17:53As the property is currently owned in unequal shares I take it that ownership must be as tenants in common already. If the mortgage is in joint names the parties will already have joint and several liability for the whole of the mortgage in which case it is at least arguable that varying the proportions will not involve any transfer of mortgage liability and that sdlt will not therefore be payable.

Alan Cook

10:47 AM, 18th March 2020
About 6 months ago

Reply to the comment left by Seething Landlord at 17/03/2020 - 19:56
I am interested in this, just to clarify is it legally held in joint names in the 99/1 split, or using the form 17 as beneficial owners only, I suspect we need input from Mark Smith who understands this side of things, the reason I ask is I have actually done the reverse form 17 rescinding the 99/1 to 50/50 and have had no issue from the HMRC.

michaelwgroves

19:01 PM, 18th March 2020
About 6 months ago

Currently legal and beneficial ownership is 99/1. I should not think you will ever have a query from HMRC about form 17 unless you are under investigation. Form 17 is just a filing exercise.
It appears you have done what I am looking to do. I'm still in research mode.

michaelwgroves

20:59 PM, 18th March 2020
About 6 months ago

Reply to the comment left by Seething Landlord at 17/03/2020 - 19:56
Sorry yes, I got that back to front. It is currently tenants in common. So question is if I change to joint tenants is SDLT still payable as we would be jointly liable for mortgage. Although having said that, even though currently tenants in common, I’m sure we are still both jointly liable for mortgage.
So maybe SDLT is only payable depending on mortgage conditions?

Seething Landlord

23:51 PM, 18th March 2020
About 6 months ago

Reply to the comment left by michaelwgroves at 18/03/2020 - 20:59
I understand that it is not possible to switch from Tenancy in Common to Joint Tenancy, only vice versa (called severing the tenancy) but you can vary the interests of tenants in common to whatever proportions you wish, by deed or declaration of trust. Whether you are each jointly and severally liable for the whole of the mortgage depends on the terms of the mortgage - if it is in joint names you probably are but you need to check the documentation.

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