Stamp Duty Help/advice please.

Thisboy

Any advice on the below query will be greatly appreciated.

Just under 4 years ago we bought a small terraced house with our son when he was away at university. He wanted to live in the area after graduating and would have a good job so it made sense. The house cost £140k and at the time the old stamp duty rates applied. I think we paid £1400 in stamp duty.

Funding of the house was £30k that my son had earned/inherited/borrowed from his sister, a 30k loan from me to my son and £80k supplied by my parents at a time when my father was dying (inheritance tax is not an issue as the family wealth was way below the threshold). My fathers dying wish was that the £80k was a gift to my brother and I but he asked for agreement (and got it) that my brother and I would loan that money to my son until he graduated, whereupon he would repay us.

My father wanted my brother and I to have some security in the deal in the very unlikely event that my son went off the rails and failed to graduate. I now believe that the solicitor should have advised us to do the house transaction solely in my sons name which would properly reflect the fact that it was, and was always intended to be his house (he lives there and we are 100 miles away) and that the loans should have been backed up by a charge being placed on the house. The solicitor, (now retired) however recommended buying the house in all three names so my son, my brother and I were tenants in common.

Confusion has now arisen regarding stamp duty that may or may not be due as we try to rectify the situation.

My son graduated and now has a reasonable job. We need to transfer the house into his sole name. We consider that my son borrowed the money from my brother and I at the time of the purchase and it would seem fair for my brother and I simply to gift our shares of the house back to my son and he pays back the debt. However, I want to be very transparent and being scrupulously honest is massively important to me. I am a little uneasy about this approach as money IS changing hands and it may be seen as an attempt to avoid tax notwithstanding that we paid the full stamp duty at the time of purchase. Even the tiniest hint of uncertainty about this approach makes me very uncomfortable.

My brother, quite reasonably wants his money. There is no mortgage.The 40k debt to my brother will be settled by me as he relinquishes title. I will also relinquish title and my son will then owe me £110k which will probably never be fully repaid.

I am more comfortable with presenting the deal as my son now buying my 40k share and my brothers 40k share in an overall deal where the house is now valued at £150k. I strongly prefer this approach but worry it may unfairly penalise us.

In respect of this latter option I have had conflicting advice from solicitors, an accountant and an estate agent. One view is that my son would have to pay £500 SDLT as the tax applies to the overall deal at £150k and he pays 2% of the £25k above the £125k threshold regardless of the fact that he already owns a third of the property. Another view suggests that, as my son is already owner of that third, then the two third shares he is buying (for 80k) is less than the £125k threshold and therefore he would have zero stamp duty to pay. A third view is that my son, as a first time buyer, is exempt as the property value is less than £300k but in buying the third share as a first time buyer under the old rules would he qualify as a first time buyer when now buying the additional two thirds under the new rules?

My aims here are to avoid paying any tax that is not due but also to ensure that our actions are fair, reasonable, above board and within the rules. I have zero interest in being slippery or cunning to avoid fair tax. I don't really want to comply with the letter of the law but not the spirit of it. Neither though do I want us penalising by the letter of the law which in this case may work completely against the spirit of it. I am sure the solicitor who did the original deal did not foresee this issue when he advised us to put the property in three names.

I phoned HMRC help desk and they were completely useless quoting examples from their website that simply did not reflect our circumstances. I would be really, really grateful if anyone with experience or knowledge can offer any advice.

Thank you.

Pixie5740

Thisboy wrote: »

Any advice on the below query will be greatly appreciated.

Just under 4 years ago we bought a small terraced house with our son when he was away at university. He wanted to live in the area after graduating and would have a good job so it made sense. The house cost £140k and at the time the old stamp duty rates applied. I think we paid £1400 in stamp duty.

Funding of the house was £30k that my son had earned/inherited/borrowed from his sister, a 30k loan from me to my son and £80k supplied by my parents at a time when my father was dying (inheritance tax is not an issue as the family wealth was way below the threshold). My fathers dying wish was that the £80k was a gift to my brother and I but he asked for agreement (and got it) that my brother and I would loan that money to my son until he graduated, whereupon he would repay us.

My father wanted my brother and I to have some security in the deal in the very unlikely event that my son went off the rails and failed to graduate. I now believe that the solicitor should have advised us to do the house transaction solely in my sons name which would properly reflect the fact that it was, and was always intended to be his house (he lives there and we are 100 miles away) and that the loans should have been backed up by a charge being placed on the house. The solicitor, (now retired) however recommended buying the house in all three names so my son, my brother and I were tenants in common.

Confusion has now arisen regarding stamp duty that may or may not be due as we try to rectify the situation.

My son graduated and now has a reasonable job. We need to transfer the house into his sole name. We consider that my son borrowed the money from my brother and I at the time of the purchase and it would seem fair for my brother and I simply to gift our shares of the house back to my son and he pays back the debt. However, I want to be very transparent and being scrupulously honest is massively important to me. I am a little uneasy about this approach as money IS changing hands and it may be seen as an attempt to avoid tax notwithstanding that we paid the full stamp duty at the time of purchase. Even the tiniest hint of uncertainty about this approach makes me very uncomfortable.

My brother, quite reasonably wants his money. There is no mortgage.The 40k debt to my brother will be settled by me as he relinquishes title. I will also relinquish title and my son will then owe me £110k which will probably never be fully repaid.

I am more comfortable with presenting the deal as my son now buying my 40k share and my brothers 40k share in an overall deal where the house is now valued at £150k. I strongly prefer this approach but worry it may unfairly penalise us.

In respect of this latter option I have had conflicting advice from solicitors, an accountant and an estate agent. One view is that my son would have to pay £500 SDLT as the tax applies to the overall deal at £150k and he pays 2% of the £25k above the £125k threshold regardless of the fact that he already owns a third of the property. Another view suggests that, as my son is already owner of that third, then the two third shares he is buying (for 80k) is less than the £125k threshold and therefore he would have zero stamp duty to pay. A third view is that my son, as a first time buyer, is exempt as the property value is less than £300k but in buying the third share as a first time buyer under the old rules would he qualify as a first time buyer when now buying the additional two thirds under the new rules?

My aims here are to avoid paying any tax that is not due but also to ensure that our actions are fair, reasonable, above board and within the rules. I have zero interest in being slippery or cunning to avoid fair tax. I don't really want to comply with the letter of the law but not the spirit of it. Neither though do I want us penalising by the letter of the law which in this case may work completely against the spirit of it. I am sure the solicitor who did the original deal did not foresee this issue when he advised us to put the property in three names.

I phoned HMRC help desk and they were completely useless quoting examples from their website that simply did not reflect our circumstances. I would be really, really grateful if anyone with experience or knowledge can offer any advice.

Thank you.

Long story short....

You, your brother and your son jointly purchased a property X number of years ago. The desire is now for your son to buy you and your brother out so that your son becomes the sole owner of your property.

If your son is paying you and your brother for your shares of the property you are not gifting him anything. You are selling him something or at the very least he is repaying loans....more on that later.

Your son isn't a first time buyer in terms of being eligible for the SDLT relief. You can find out why here: SDLT: Relief for First Time Buyers

I think that as your son already owns a share of the property then SDLT will be based on the consideration paid and as that is under £125k then no SDLT will be due.

Now on to Capital Gains Tax. You and your brother appear to be legal owners of the property along with your son but are you also beneficial owners? Was a Declaration of Trust drawn up when you purchased this property saying who owns what? As this property is neither your nor your brother's main residence it will trigger a Capital Gains Tax liability. The good news is that you each have a CGT allowance of £11,700 this tax year and the property hasn't risen in value by more than that so unless you have already used your CGT allowance this year there shouldn't be any CGT to pay.

SDLT_Geek

The first thing is to check that the property is really owned by three people. It is not the end of the story that the property is registered in the names of your son, you and your brother. There might be a declaration of trust setting out that it is held outright on behalf of your son and that there are loans.


But that sounds unlikely. It sounds more likely that you are all beneficially entitled. The following then applies:


1. What is proposed is that your son buys out the property interests you and your brother have.
2. The chargeable consideration is what he pays, or promises to pay, so perhaps the £110,000 debt you mention if you son pays nothing in cash straight away.
3. Your son is not a first time buyer.
4. The acquisition by your son should not be "linked" to the original purchase as he is buying from someone unconnected to the original seller.
5. If the chargeable consideration for the shares your son is buying in is £110K then no SDLT will be due, but a land transaction return will be required.

Thisboy

Thank you both VERY much for your replies.

I think that the safest way to proceed (as opposed to claiming he is simply paying back 80k loans taken out 4 years ago upon original purchase - these were informally done with no supporting documentation) is to allow my son to now buy my brother's share (40k) and my share (40k) - 80k in total - on a property that will now be worth £150k.

I can confirm that the property was bought on the open market from people completely unconnected with our family and who we had never met beforehand. I think from your replies I read that, as the amount changing hands is less than £125k and my son already owns a third share of the house, although we will need to submit a SDLT return, there will be no stamp duty payable. Is that right?

Re CGT, neither my brother nor I have made a single penny profit and are solely getting our 40k back each (although mine may never arrive - bank of dad!). Although the house itself has probably increased in value by £10k the beneficiary of that will be entirely my son and he has, and continues to live in the house. Additionally neither of us have ever used any of our CGT allowance.

Thank you again for your help and advice.

00ec25

Thisboy wrote: »

Re CGT, neither my brother nor I have made a single penny profit and are solely getting our 40k back each (although mine may never arrive - bank of dad!). Although the house itself has probably increased in value by £10k the beneficiary of that will be entirely my son and he has, and continues to live in the house. Additionally neither of us have ever used any of our CGT allowance.

tread carefully and this time document everything in writing

legally, on paper, you and your brother are owners. As mentioned above, your exposure to CGT is based on what money you get back with the added complication that the "purchaser" is a "connected person" since he is your son. Therefore if either you or your brother get back 1 penny more than the original "loan" amounts, the whole transaction will become subject to the market value rule applied to connected persons

set out on paper what you get back, or, in your case, how much of the debt your have forgone by gifting it back to your son. not only may you have to explain yourself for CGT purposes, but eventually your own estate may have to explain itself for inheritance tax purposes. therefore you need to create written records !