Stamp duty on joint mortgaged property - one half gifting share to other half?

Lysimache

Hi!

My uncle jointly owns a buy to let property with his niece.

It's a joint tenancy between them. Obviously they're not FTBers.

Property is worth £400k, mortgage of £250k on it.

If he gifts his share (e.g. £200k of property, £125k of mortgage?) to her in exchange for nothing, then how much stamp duty does she have to pay? I know there's CGT due too but the stamp duty confuses me.

Obvs they need to get their mortgage company to be happy with that but he's asked for advice on the tax implications as he thinks it through. I found the Government website a bit confusing for mortgaged properties in trying to advise them.

Thanks for any info!

TrickyDicky101

Does the niece own any other property?

Pixie5740

If she is effectively paying £125k (additional borrowing) for the property then she will either pay £0 SDLT if this is her only property or £3,750 if the higher rate of SDLT applies.

00ec25

SDLT depends entirely on what is happening with the mortgage

presumably both are currently liable for it but once uncle gives away his share of the property he is presumably coming off the mortgage.

Will the lender allow niece to "take over" all the existing mortgage or will they require the mortgage to be repaid and niece to take out a new one in her sole name?


if niece takes it over then SDLT will be based on 50% of the value of the o/s mortgage taken over since the consideration involved is she gets a house and he is removed from liability for a debt. So exchange of chargeable consideration would occur in that case.

if niece has to get a new mortgage in her sole name then no SDLT is payable as uncle has not received anything in return. The old mortgage having been paid off, he is not being removed from a liability, so she does not have to pay SDLT as she received the property as an outright gift (subject to CGT as you know)

read: https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

Lysimache

Thanks for the prompt responses.

Niece owns another property (her residential place) and is aware she will need to pay 2nd home owner rate on any stamp duty.

In terms of whether one person is taken off an existing mortgage or if there's a new mortgage, they will look into that but it'd be good to know what the situation is in both cases so they can think what's best.

00ec25, thanks - I'm just trying to get my head around the situation if there's a new mortgage. Why is there no stamp duty is your receive a property as an outright gift (i.e. getting a new mortgage with just niece on it)? Wouldn't it be akin to purchasing a £400k property all again?

Thanks for all the advice - just trying to get my head fully around this.

Lysimache

Oh, wait, is the getting a new mortgage in one name covered by:

"If the larger share is given outright as a gift If you take a bigger share but don’t pay anything in return, there’s no ‘consideration’ given including taking on liability for a mortgage. You won’t pay SDLT, even if the value of the extra part of the share is more than the SDLT threshold. You don’t need to tell HMRC about the transaction."


Right?

JoJo1978

I believe that HMRC will be alerted by the sol when the transaction completes regardless of what is payable. I'm only basing this on a question I recently asked our solicitor about whether I needed to inform HMRC about anything. Best to ask about these specific circumstances though

Lysimache

I have no problem with HMRC knowing; I'm just checking that there's no stamp duty to pay if you stop one joint mortgage and then go onto a single new mortgage for one of the original parties

00ec25

Lysimache wrote: »

Oh, wait, is the getting a new mortgage in one name covered by:

"If the larger share is given outright as a gift If you take a bigger share but don’t pay anything in return, there’s no ‘consideration’ given including taking on liability for a mortgage. You won’t pay SDLT, even if the value of the extra part of the share is more than the SDLT threshold. You don’t need to tell HMRC about the transaction."

Right?

yes, SDLT is based on the fact there has been an EXCHANGE of "chargeable consideration"

no exchange > no SDLT.
a gift is a gift, nothing is given back to the giver (aka "exchanged") in return for the item given....

in the case of someone taking out a sole name mortgage the question is "simply" around the amount paid to the "giver".
In the case of a gift that is £0, so no SDLT

Lysimache

I see. Perfect, thanks!

Final question: would there to be capital gains to pay for either party if one party converted it to a gift to the other party and then sole mortgage?

00ec25

Lysimache wrote: »

I see. Perfect, thanks!

Final question: would there to be capital gains to pay for either party if one party converted it to a gift to the other party and then sole mortgage?

depends....

if both parties meet the definition of "connected person for CGT" then the "giver" will be liable to CGT based on the gain between original cost and current market value at point of giving.
Note, if the recipient is a connected person it matters not whether they pay anything to the giver, that transaction is always based on market value.

if neither is a "connected person" then the giver has "disposed" of the asset for £0 (and created a CGT loss by so doing) whereas the recipient has acquired said asset for £0 and so faces an increased CGT gain/bill when they finally sell up