Land Tax

jules5526

I apologise for such a long post but I really can’t seem to find an answer

My house that I brought 21 years ago ( house 1) in my name( but me and my partner lived there) decided to move and get a bigger house with my partner, some equity had to be released and was used to buy the next house, (House 2,) partners name was put on the deeds of House 1 which was then made a rental, we kept the property and had a joint buy to let mortgage. We then brought House 2 as a joint mortgage to live in.
My self and partner have now parted company, we have sold, House 2 for £421000 partner is receiving £15,000 from the sale, the rest of it is being used to pay off the outstanding Mortgage of House 2, approx. £227,000 and House 1 £161,000 for which I am moving back into and will own, partners name will be removed from house 1. I hope this all makes sense. (we are not married)
I am really concerned after looking at the HMRC website really am confused (or just thick) to whether, I liable to pay tax as I am taking a bigger share, if so any idea how much?
I will be remortgaging house 1 to fund some building work.

Part Copied info from HMRC website
If you transfer or divide up jointly-owned property or land: unmarried couples and other joint owners.
You don’t pay SDLT if 2 or more people jointly own property (as joint tenants or tenants in common) and you divide it physically and equally and own each part separately. But, if one person takes a bigger share, or all of the other’s share, and pays cash or some other consideration in exchange, you must tell HMRC. If the amount you pay is more than the current threshold, you’ll pay SDLT on it,

You don’t pay SDLT if 2 or more people jointly own property (as joint tenants or tenants in common) and you divide it physically and equally and own each part separately. But, if one person takes a bigger share, or all of the other’s share, and pays cash or some other consideration in exchange, you must tell HMRC. If the amount you pay is more than the current threshold, you’ll pay SDLT on it, see example 4.
You’re given property as a gift
If you get property as a gift you won’t pay SDLT as long as there’s no outstanding mortgage on it. But if you take over some or all of an existing mortgage, you’ll pay SDLT if the value of the mortgage is over the limit.

If you have got this far thank you for reading

jimmo

Definitely no expert in SDLT, what I know about it has all been gleaned from this forum. AIUI you need to consider the value that has passed between you in respect of house 1 but before going there I think it is necessary to look at house 2
That was sold for £421,000. Your partner's share was therefore £210,500 less their half share of the outstanding mortgage £113,500which means your partner was entitled to cash of £97,000.
He or she is taking £15,000 meaning that £82,000 is passing from your partner to you.

Now, your partner has passed to you their half share of house 1 plus £82,000 to you in exchange for release from their half share of the outstanding mortgage. If the outstanding joint mortgage was £161,000, your partners half share was £80,500 meaning that in SDLT terms you got an absolute bargain and paid nothing for acquiring your partner's half share of house 1
Have to repeat here that I am definitely no expert in SDLT. Just using an ex-taxman's logic.
However I like to think that I know a thing or two about Capital Gains Tax and, depending heavily on dates when all this happened, I really suspect that your partner faces a pretty substantial CGT liability on his or her disposal of the half share of house 1 to you.

jules5526

Hi,
Thank you so much jimmo :A it was a long post and do appreciate your time to read and reply,, wow, i also admire your ability to make sense of it all, i had to read your reply about 4 times to get my head around lol, I think i understand, and understand that land tax isn't your first skill, but you have relieved my worry, thank you. Julie x

sheramber

There is a member who posts on the House Buying.selling and Renting thread who may be able to help with the Land Tax position

00ec25

I maybe misreading your post but assuming both houses are 50/50 ownership

starting position:
House 1 - joint ownership, o/s mortgage 161k (80.5k each), usage: letting by both owners
House 2 - joint ownership, o/s mortgage 227k (113.5k each), usage main home of both owners

end position:
House 1 - sole ownership in his (OP's) name, mortgage paid off in full, usage: Op's main home
House 2 - sold for 421k, so 210.5 per owner. Deduct 113.5k for each owners share of the mortgage and that leaves each owner with cash of 97k per person

In order for you to keep house 1 in your sole name you have to "buy out" her share of the property since she is entitled to half its value less her 80.5k share of the mortgage. However, as you say the 161 mortgage on house 1 is being paid off in full that means of her 97k from sale of house 2, she is spending 80.5 on paying off house 1 leaving her with net cash of 16.5k ("about 15k"???).

You then get sole ownership of house 1 and she gets nothing in return??? That would influence if there is chargeable consideration being exchanged

Tom99

What is the current value of House 1?

SDLT_Geek

I wonder whether House 1 is really jointly owned, given the figures supplied. OP bought it herself in the first place about 21 years ago. Only later did her partner’s name go on the deeds, that was to raise money to buy House 2. So did the partner acquire a share in House 1 at that stage? Perhaps not. Hopefully a declaration of trust at the time sets it out clearly. Who has been entitled to the rents all these years?

If OP has no share in House 1, but it is just a case of his name now coming off the deeds then:

(a) There is no acquisition of a property interest by OP and so no SDLT.

(b). There is no disposal for capital gains tax by the partner.

00ec25

SDLT_Geek wrote: »

(b). There is no disposal for capital gains tax by the partner.

as you say, that would be rather heavily dependent on who got the rental income as a key indicator of beneficial ownership and whether anything was documented before sale to show the position was altered.

jules5526

Hi Thank you for replying
yes the house was brought by me 21 years ago only had partners name on mortgage/deeds to release money to fund house 2 approx 2 years ago.
I have no awareness of declaration of trust, unfortunately i was unwell at the time and the paperwork was completed by my partner.
I have run the rental of the house 1 and have personally received the income,and paid the tax on that for the last 2 years
what a complete headache!

00ec25

jules5526 wrote: »

I have no awareness of declaration of trust, unfortunately i was unwell at the time and the paperwork was completed by my partner.
I have run the rental of the house 1 and have personally received the income,and paid the tax on that for the last 2 years
what a complete headache!

then you need to see the paperwork because in tax law who physically receives the rent is not necessarily the person liable to pay tax on it if it relates to a joint ownership.
Obviously the paperwork may also impact SDLT so no one can advise you until you know yourself who owns what on paper

jules5526

Thank you, i think i need to go and speak to someone properly, if I ever get to the bottom of this i will let you know!