Transfer of Equity / SDLT question for a married couple?

Moonspark

Apologies if this has been asked before. I have not been able to find anything definitive so far.

My wife and I got married on 20/12/2005.

For our previous house, we had to get a mortgage in my name only and so the title deeds were also in my name only. When we applied for a joint mortgage we were declined, I think due to my wife’s credit rating at the time, so the only option was to get mortgage in my name only and therefore the title deeds were in my name only as well.

We then sold that house and bought our current house on 08/09/2006 (completion date). Again, due to mortgage which transferred to our new house, title deeds were also in my name only.

In real terms, everything to do with the finances were and are shared equally 50/50 between us eg funds for deposit, monthly mortgage payments bills etc. That was also the case with our previous house. But the issue / my current question never came up then as technically it was bought and later sold in my name only.

We are now remortgaging the house to a new lender, (same mortgage amount), but due to a change (for the better) of my wife’s income, and because she wants to be on the title deeds, we are remortgaging in both our names, so will have to do change the title deeds from my name only to both our names.

Presumably we won’t have to pay any SDLT at the same time as the transfer of equity / remortage. If we did, it would basically be govt theft. But as I say, I can’t find anything definitive yet. Can any one advise?

Many Thanks in advance.

holly_hobby

Its CGT where there is no liability on transfers between spouse's living together, but unfortunately this is not the same basis of calculation in respect of SDLT.

SDLT is based on consideration provided in exchange for property ownership - consideration is essentially the value of any transfer of monies, goods/services, or debt (ie mortgage) made in respect of the transfer.

In this case your property is mortgaged, and your wife as a result of the transfer of equity (TOE), will become a joint mortgagor with you. And although there may not be any actual monies physically exchanged between you as part of the exercise, the consideration is actually the value of the mge debt she is effectively "taking over" ie 50/50.

If her share exceeds current nil rate threshold of 125k, then yes there will SDLT for her to pay.

On consideration up to a value of 250k, this will equate to 1%, as I'm guessing that your total current mge debt doesn't exceed 500k (ie 250 x 2), if it does then its 3% and so on.

She'll report any liability via a SDLT return (although your solicitor should do this as part of the exercise), as although a TOE may be effected directly with Land Reg, where the property is mortgaged, the lender will generally insist that any TOE is administered by a licensed conveyencer, costs circa £500 & lender admin fee.

Hope this helps ....

Holly xx

Moonspark

Many thanks for your reply Holly :-)

Yes, it seems you are right. I actually called up HMRC this afternoon who confirmed this is correct. Unbelievably.

Some people see all taxes as theft, but I can see why they are not as tax is a vital and ‘natural’ source of revenue for govts. OK.

But in this case, we had already paid stamp duty @ 3% when we bought our current house, as we also did with our previous house. We have records to prove that 50% of that was paid by my wife. Genuinely. We have always earned roughly the same and, as sad as it sounds have always had a joint spreadsheet..

We did the same for our previous house, but as that was bought and sold in my sole name, the issue never came up. As said before, we were forced to do this to get a mortgage, which for reasons mentioned before, could only be in my name only.

While I can see some sort of rationale for SDLT, in this case we are being forced to pay it twice (or rather 1.5 times).

I am trying to be logical, but I simply cannot come up with any other conclusion other than this is purely double taxation / simple theft by the govt?

I can see why the government are trying to tighten all tax loopholes, but in our case, being forced to pay SDLT again is simply illogical.

Holly, you seem to know what you are talking about, so may I ask do you know if there is anyway we can appeal / legally challenge this injustice?

holly_hobby

Yes its correct.

Unlike CGT, SDLT takes no consideration of beneficial ownership.

SDLT is as you know in respect of an individual obtaining property ownership, in exchange for any consideration (ie its not an outright gift).

In this case, your wife is NOT the legal owner of the property you are, (as her credit status wasn't suitable to be party to the original mge, which meant you elected to purhcase in your sole name), technically she resides there as your spouse, and although married you are treated as 2 separate entities for SDLT purposes. From HMRC point of view, the SDLT incurred and paid by you on pch, was actually YOUR liability, not your wife's, even if she financially contributed to it .... which I know is frustrating.

Hence, if she is to become a legal owner, and consideraton is exchanged (ie in this case its a tsf of mge liability from single to joint), and that consideration exceeds SDLT nil rate threshold, there's SDLT to pay - and thats non-negotiable I'm afraid.

The only solution I can think of is if you can reduce your os mge balance below 250k - which means that her effective share of the mge debt on transfer would be 125k, which will fall within the nil rate SDLT threshold.

Other than that, its either pay up, or don't effect the TOE with Mrs., and when you pch your next property do so in joint names .....

Sorry, but it is what it is I'm afraid .... here's a link I've dug out from HMRC regarding this subject ... http://www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm

Hope this helps

Holly

cjard

If yours is a leasehold property, don't forget the potential additional complication from leasehold properties in that the lease length * the ground rent, minus the purchase price is SDLT'ed at 1% if it is above zero..

Moonspark

Cjard – no, its freehold.

Holly – thanks for the link. Yes I had already spotted that one last week when I spent many hours/days unsuccessfully researching for something definitive / ‘official’ on the web.

But that webpage did not give me a definitive answer as the closest example given on that page (Example 2) to our case – assumes that one spouse transfers to the other when they got married. In our case the property was actually originally bought after we were married, as a 50/50 joint purchase, but for reasons mentioned, ‘technically’ / ‘legally’ had to be in my name only.

Actually the previous house purchase & mortgage had to be in my name only (we only lived there for a year), but had to move again. By the time we bought the current house in 2006, my wife’s credit rating had improved, so we prob could have got a joint mortgage / title deed in both our names then. BUT due our (and all lenders) mortgage terms, we would have had to pay a very sizeable redemption penalty to get out of the at mortgage and get a new joint mortgage at the time of the move.

For George Osbourne and his friends @ HMRC to get hold of more cash via SDLT from us, still seems completely illogical and unfair.

In this day & age of increasing difficulty to get mortgages over recent years, I imagine there might be many others in a similar position to ourselves. Surely the rules need to be looked at again / modernised by TPTB, assuming they are not just pure thieves/ chancers extorting whatever they can through double taxation of the same asset?

Moonspark

BTW the above reference to George, was not a political point. I am not that simple that I believe there is realistically any major ‘political’ or ‘fiscal’ difference between whoever happens to be in govt at any point in time. But this SDLT DOUBLE taxation (for couples in our circumstances) is completely unjust and completely out of touch with reality…

Any alternative views out there? Please advise if so.

holly_hobby

But it wasn't a joint purchase, you purchased it in your own sole name ... as I say beneficial ownership and free tsf between spouse's has no baring in respect of SDLT, only CGT.

So until HMRC change the rules ... you're stuck with either leaving things as they are, reducing the mge below 250k (so her 50% share (which will be the consideration) falls within SDLT nil rate band), or transferring and paying the SDLT ... they are the only options .... but I understand you're frustrated.

What is the os mge she'll become party to ?

Holly

PS - just to top and tail ... the only time there isn't SDLT (as full relief is given) on tsfs between spouses, and where the property is mortgaged, is as a result of divorce or judicial separation.

Moonspark

Thanks again Holly. The mortgage is £410k.

Just thinking if there is any way, other than reducing the mortgage to under £250k - to stop HMRC getting their greedy mitts on more SDLT via their own suspect (double taxation) rules for people in our situation.

Are we allowed to transfer say 30% of the ownership to my wife via TOE / title deeds, thus keeping her mortgage commitment below £125k? Would this be legal and would a mortgage lender agree to this?

It does seem illogical that the transfer of EQUITY / SDLT rules appear to not be related to EQUITY, but actually DEBT (mortgage outstanding)?

holly_hobby

Sorry Moonie,

Where there is an OS mge and a TOE, then HMRC assign the mge commitment to be split 50/50, regardless of any TIC arrangement, even though the mge itself is both jointly and severally (singularly) liable by both of you, so at least its better than taking the whole amount !

As it stands, her mge "share" on transfer would effectively be £205k, so £2,050.00 at 1% .... if this is the same or thereabouts to the prev ERC you say you saved by leaving her off a little while back, then think of it as a delay payment instead may make it less painful .....

Sorry, I know this will disappoint, but as HMRC have also advised you, there really is no way to avoid this ....

Is there a particular driving reason for her to become a legal owner ? Anything to do with creditors/bankruptcy etc ?

If not, why not leave things as they are for now ?

Holly

TrickyDicky101

If you paid the mortgage off then no SDLT would be payable following TOE (as no monetary consideration would be changing hands at this point). So it could be a consideration for the future.

Since you're married your wife has you by the short & curlies in any case, so is getting her name on the mortgage really that important at this juncture?