Partner buying sisters share of property?

Pockelford

Hello - I've been searching online for a few days and can't find anything concrete relating to my situation...

I own a freehold property 50/50 with my sister as tenants in common. My sister and I have agreed to sell my sister's 50% to my girlfriend - My sister would move out and my girlfriend in. My girlfriend is a first time buyer having never owned property.

Consideration for the 50% at current market value: we believe will be no more than £250,000. At last valuation our agent suggested the entire property could sell for £500k. (Best way to obtain fair valuation for both parties?)

In this situation, does my girlfriend only owe SDLT on the 50% she is aquiring? And, does she qualify for first time buyer SDLT relief?

Throughout all I will retain my 50% share. I know I'm not a first time buyer, but I'd hope this is irrelevant as I'm not buying anything.

Any insight appreciated!

SDLT_Geek

There is something really odd here in the way that HMRC sometimes view these transactions. Common sense is that the “vendor” (the seller) is your sister and that the “purchaser“ (the buyer) is your girlfriend.

HMRC sometimes say however that the purchaser is you and your girlfriend. If that was right, then first time buyers relief would not be available as you have previously acquired a property.

I understand that they take this view because the transaction would often be documented in a transfer TR1 on which the transferee would be expressed as you and your girlfriend.

To head off an argument from HMRC the documentation could be drawn up carefully to make it clear who the parties are, you could use a deed of assignment from your sister to your girlfriend of the one half beneficial interest.

00ec25

is there a mortgage on the property?

how much, if anything, is girlfriend actually paying sister for the share she is "buying"?

Pockelford

Hi - thanks for asking - My girlfriend will pay half of the value of the property (half is around £240-250K) in exchange for a 50% share of the freehold. I acquired my 50% five years ago, as did my sister. There was never a mortgage and my girlfriend is not seeking one.


All of the lawyers my girlfriend has spoken to simply point to page 7 of the First time buyers guidelines that says "If the property is purchased jointly, all the purchasers must meet these conditions."


So it seems to hinge on the legal definition of 'joint purchasers' - Am I still a joint purchaser even though I 'purchased' years ago in a different transaction? Purchaser either means part of the current transaction, or having at any time acquired (and currently retaining) a major interest... If the latter, then a first time buyer could never achieve relief unless they were buying 100% (with a mortgage) or with a shared ownership scheme...

I don't understand why my girlfriend is hit with the tax on her first home purchase - It's not as though I benefit financially from any of this...

Why is it different if a joint purchaser (at the same time no less) is a shared ownership scheme?

Do I essentially need to prove that it's not 'we' who are buying my sister's share. It's 'my girlfriend alone' who is providing the consideration, and receiving the 50% share. I don't enter into this at all.... It's simply a switch from my sister to my girlfriend. I will cease to be a tenant in common with one, and become a tenant in common with the other.

SDLT_Geek

Yes, it comes down to who the “purchaser” is. Documenting the assignment of the share well could help. I might get an answer from HMRC on this issue at a meeting next week.

Pockelford

Thank you - I'm going round and round in circles and just can't find anything definitive! I really appreciate your insight.

da_rule

Will be interesting to see what HMRC say. There are a couple of problems that I can foresee from a practical point of view. Whilst transferring the beneficial ownership is fine, this will not transfer the legal ownership and will then mean that the legal owners (the op and their sister) are holding the property in trust for the girlfriend.

It could then also be potentially argued that as the sister hasn’t disposed of her legal interest in the property she would have to pay higher rate stamp duty on any future purchase of land?

The Land Registry (in relation to a transfer deed to transfer legal ownership) take the view that the same person can essentially be the buyer and the seller when they are coupled with a different person. So, Op and sister are ‘Couple 1’ and then op and girlfriend are ‘Couple 2’, Couple 1 are effectively selling to Couple 2. However, as one of members of the Couple is the same person, the consideration that changes hands is only half of the value of the property. If this is then applied to SDLT, as the rules require both purchasers to be first timers in order to get the exemption it would not apply.

getmore4less

da_rule wrote: »

Will be interesting to see what HMRC say. There are a couple of problems that I can foresee from a practical point of view. Whilst transferring the beneficial ownership is fine, this will not transfer the legal ownership and will then mean that the legal owners (the op and their sister) are holding the property in trust for the girlfriend.

It could then also be potentially argued that as the sister hasn’t disposed of her legal interest in the property she would have to pay higher rate stamp duty on any future purchase of land?

The Land Registry (in relation to a transfer deed to transfer legal ownership) take the view that the same person can essentially be the buyer and the seller when they are coupled with a different person. So, Op and sister are ‘Couple 1’ and then op and girlfriend are ‘Couple 2’, Couple 1 are effectively selling to Couple 2. However, as one of members of the Couple is the same person, the consideration that changes hands is only half of the value of the property. If this is then applied to SDLT, as the rules require both purchasers to be first timers in order to get the exemption it would not apply.

Making legal owners/trustees liable for SDLT on property they have no beneficial interest in is very unlikely to ever happen.
(would cause far too many problems).

All land is effectively held as trust just in a most cases the legal owners/trustees are the same those with the beneficial interest.

SDLT_Geek

The issue of "who is the buyer" where in reality only a share in the property is changing is addressed in the detailed paper on first time buyers' relief available from a link on this page: https://www.blakemorgan.co.uk/sdlt-first-time-buyers-relief/ See especially section 7.1 of the detailed paper.

Pockelford

[FONT=&quot]So as tenants in common on the title it's currently Paul/Sister - and we want to end up with Paul/Partner. And the TP1 form doesn't let you retain Paul/ on the title and only change the /Sister part. So you have to change the full title from Paul/Sister to Paul/Partner, even though it's a form for part transfer! [/FONT]

[FONT=&quot]Essentially everyone on the title comes off, and those remaining are put back on it with the new person. This could easily be solved with the addition of a box where you could declare where any consideration is originating. Why am I forced to even 'OK' the transfer of title when logically no change is being made to mine. [/FONT]

[FONT=&quot]If I've understood the problem - what's the solution? Is it possible, as SDLT Geek suggested, to obtain something that legally states it's not A/B transferring to A/C, but rather just B transferring to C? And would that likely cost more than the £2.5k stamp duty?[/FONT]

[FONT=&quot]Next they'll tell me that the Stamp Duty isn't on the property being bought (£250k), but because we're ambiguously considered joint purchasers it'll be on the full £500k and demand £15k duty on obtaining a 50% share of the freehold worth only £250k.[/FONT]

[FONT=&quot]Has no one taken this to court to get a legal judgement? People are potentially losing thousands to potentially arbitrarily enacted ambiguous rules.[/FONT]

SDLT_Geek

The form of transfer if the legal title needs to changed is a TR1 (transfer of all of the land) rather than a TP1 (transfer of part of the land). A deed of assignment should assign the share from sister to girlfriend.

I have yet to receive the agenda for the meeting with HMRC on Thursday, I hope they agree to my request to include this issue. Failing that I might be able to bring it up under AOB.