Questions on mortgages and tax when a gifted second property involved

rjw2849

Hi all,

Posting this as, after plenty of research, I still have some questions I’m hoping you could help me clear up.

Background

Currently I own and reside in Property A. My fixed rate mortgage for this property ends early 2021, at which point I want to get a new mortgage at the same property, with my girlfriend joining me on that mortgage, such that she would own ~18% of the property. She would not be injecting any deposit into the property, just joining me on the mortgage. She would also reside in this property full time with me, as her main residence.

This alone would be simple, but before then (in the next 6 months) her father is looking to gift to her a property (let’s call this Property . Property B would be entirely in her name and would have no mortgage at all. This property would be rented out as it is now. She would not reside there.

Questions

1. What Stamp Duty, if any, would we pay when she joined me on the mortgage for Property A? What value would the Stamp Duty amount be based on? Would this be at normal or higher rate of stamp duty?

2. Would our ability to get a mortgage together for Property A in early 2021 be negatively impacted by the fact she owned a second property (even though she has no mortgage on that Property ? For example, would we be not able to borrow as much or would we get a worse rate?

3. If we were to sell Property A in e.g. 5 years in order to buy a new home in place of Property A (i.e. it would be our main residence), would we pay the higher rate of stamp duty on that purchase, on account of her ownership of Property B? Would the possibility of us being married by that point in time affect this differently?

4. I understand she would be taxed on rental income from Property B, but would her salary from her job be taxed at a higher rate too or would this stay as is?

5. If we were married in future, would her ownership of Property B affect the income tax on my salary? I assume not as Property B would remain in her name.

6. Would it make any difference / sense for my girlfriend to join me on Property A’s mortgage now instead, some months before her father gifted Property B to her? This would mean we would not need to mention Property B in our mortgage application.

Thank you so much for any assistance on these!

dimbo61

Why would you put your girlfriend on the mortgage.
When you come to remortgage in 2021 you could go to another lender and then add her on ! However if she already owns a BTL you may well have to pay extra stamp duty.
If in 2/3 years you bought a house together you would have to pay the extra stamp duty because again she owns another property.
If she sold her BTL property and you sold your home and bought a place together you would not face the 3 % extra stamp duty.
It's and buts and maybe !!!!
Have your girlfriend move and charge her rent and see how it goes

RedFraggle

rjw2849 wrote: »

Hi all,

Posting this as, after plenty of research, I still have some questions I’m hoping you could help me clear up.

Background

Currently I own and reside in Property A. My fixed rate mortgage for this property ends early 2021, at which point I want to get a new mortgage at the same property, with my girlfriend joining me on that mortgage, such that she would own ~18% of the property. She would not be injecting any deposit into the property, just joining me on the mortgage. She would also reside in this property full time with me, as her main residence.

This alone would be simple, but before then (in the next 6 months) her father is looking to gift to her a property (let’s call this Property . Property B would be entirely in her name and would have no mortgage at all. This property would be rented out as it is now. She would not reside there.

Questions

1. What Stamp Duty, if any, would we pay when she joined me on the mortgage for Property A? What value would the Stamp Duty amount be based on? Would this be at normal or higher rate of stamp duty?
None. She isn't buying your house

2. Would our ability to get a mortgage together for Property A in early 2021 be negatively impacted by the fact she owned a second property (even though she has no mortgage on that Property ? For example, would we be not able to borrow as much or would we get a worse rate?
No, there's no mortgage

3. If we were to sell Property A in e.g. 5 years in order to buy a new home in place of Property A (i.e. it would be our main residence), would we pay the higher rate of stamp duty on that purchase, on account of her ownership of Property B? Would the possibility of us being married by that point in time affect this differently?
Yes and no

4. I understand she would be taxed on rental income from Property B, but would her salary from her job be taxed at a higher rate too or would this stay as is?
Tax on her rental income will require her to submit a tax return and pay what is due. It won't affect how her salary is taxed

5. If we were married in future, would her ownership of Property B affect the income tax on my salary? I assume not as Property B would remain in her name.
See 4

6. Would it make any difference / sense for my girlfriend to join me on Property A’s mortgage now instead, some months before her father gifted Property B to her? This would mean we would not need to mention Property B in our mortgage application.
Irrelevant

Thank you so much for any assistance on these!

Also make sure when the solicitor deals with the land registry side of things you are tenants in common with the share stated and not joint tenants.

rjw2849

Thank you for your responses!

@dimbo61 because at the moment my brother owns 18% of the property (he used to live with me) and I would like to return that money to him. So my girlfriend and I would be looking to get a larger mortgage than I have currently in order to cover that 18%.

1. I thought that when we moved into a new main residence (in which we would be living), we would not pay higher rate stamp duty as it's us buying a place to replace our main residence?
2. You said "When you come to remortgage in 2021 you could go to another lender and then add her on ! However if she already owns a BTL you may well have to pay extra stamp duty" do you know which portion of the property she'd pay stamp duty on, just the 18%?

Thank you!

SDLT_Geek

rjw2849 wrote: »

1. What Stamp Duty, if any, would we pay when she joined me on the mortgage for Property A?
What value would the Stamp Duty amount be based on? If she really is to have an 18% share in the property (even without putting in any capital) then she acquires a chargeable interest (the 18% share) and the chargeable consideration will be 18% of the mortgage debt.
Would this be at normal or higher rate of stamp duty? I would expect this to be at higher rates if by the time she acquires the 18% share she owns a let property.

3. If we were to sell Property A in e.g. 5 years in order to buy a new home in place of Property A (i.e. it would be our main residence), would we pay the higher rate of stamp duty on that purchase, on account of her ownership of Property B? I would expect the "replacement exception" to apply if the rules have not changed. If so, the extra 3% SDLT would not apply. It would not matter that she owns Property B, so long as Property A (which has been her home) is sold and a new property is bought for her to live in.


Would the possibility of us being married by that point in time affect this differently? If you were married by the time Property A is sold then the "replacement exception" would (on current rules) save her from the 3% extra SDLT even if she had no share in Property A as she could rely on a sale by her spouse of the property she had been living in.

6. Would it make any difference / sense for my girlfriend to join me on Property A’s mortgage now instead, some months before her father gifted Property B to her?

Yes, it makes a difference. The higher rates should not apply to her acquisition of a 18% share. There might be a possibility of first time buyers' relief as well, though HMRC still have an odd view that she is not the sole purchaser of the 18% share, but the other owner (OP) is a purchaser too. If right, that would rule out first time buyers' relief.

00ec25

rjw2849 wrote: »

Posting this as, after plenty of research, what did you read, how tax works in Timbuktu, not the UK? I still have some questions I’m hoping you could help me clear up.

Background

Currently I own and reside in Property A. My fixed rate mortgage for this property ends early 2021, at which point I want to get a new mortgage at the same property, with my girlfriend joining me on that mortgage, such that she would own ~18% of the property. She would not be injecting any deposit into the property, just joining me on the mortgage. She would also reside in this property full time with me, as her main residence for both of you.

This alone would be simple, but before then (in the next 6 months) her father is looking to gift to her a property (let’s call this Property B). Property B would be entirely in her name and would have no mortgage at all. This property would be rented out as it is now. She would not reside there.

Questions

1. What Stamp Duty, if any, would we pay when she joined me on the mortgage for Property A? What value would the Stamp Duty amount be based on? Would this be at normal or higher rate of stamp duty? is property A worth more than £222,222 at market value rates?
If yes then her 18% of Property A equates to at least £40,000 so yes, she will be liable at the higher rate SDLT as it is based on market value of the property, not the size of the debt.
However, the amount she would pay would then be based on the size of the debt, as that is the chargeable consideration. This is condition C
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09780

if 18%<40k she will not pay SDLT at all as the chargeable consideration would be below the 125k threshold applicable at standard SDLT rate.


2. Would our ability to get a mortgage together for Property A in early 2021 be negatively impacted by the fact she owned a second property (even though she has no mortgage on that Property ? For example, would we be not able to borrow as much or would we get a worse rate? B is mortgage free so its existence has no bearing on your joint mortgage on A.
That said, depending on the lender, they may (or may not) allow for the rental profit to be added to her total income when assessing how much you can borrow as a joint loan

3. If we were to sell Property A in e.g. 5 years in order to buy a new home in place of Property A (i.e. it would be our main residence), would we pay the higher rate of stamp duty on that purchase, on account of her ownership of Property B? Would the possibility of us being married by that point in time affect this differently? No, this is Condition D (you did research this didn't you?) replacement of main residence
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800

4. I understand she would be taxed on rental income from Property B, but would her salary from her job be taxed at a higher rate too or would this stay as is? how on earth did your research produce that gibberish

she will be taxed on her TOTAL taxable income according to the amount split into the relevant tax bands.
If her total TAXABLE income (employment income before tax, possibly net of pension depending on her her pension deduction works) less personal allowance £12,500 plus net rental profit = >£37,500 she will pay 40% tax on the amount in excess of £37,500.
If less than 37,500 then she will remain a basic rate taxpayer.

5. If we were married in future, would her ownership of Property B affect the income tax on my salary? I assume not as Property B would remain in her name. no, it is her sole name and so her sole tax liability

6. Would it make any difference / sense for my girlfriend to join me on Property A’s mortgage now instead, some months before her father gifted Property B to her? This would mean we would not need to mention Property B in our mortgage application. A would be her first property? Therefore standard rate would apply, so likely no SDLT payable as I'd guess 18% of the o/s mortgage on A would be <£125,000

As B has no mortgage, her later acquisition of that would have no SDLT consequence as there is no chargeable consideration with a gift

Thank you so much for any assistance on these!

re Q5 - she should go see an accountant for tax planning options re CGT on B once you marry as she could make you a co-owner and thus reduce eventual CGT, but at the "expense" of you potentially becoming liable for a share of the rental profit depending on how you structure the ownership

Take care though if there is a mortgage in place on B by that time, as you could be exposed to SDLT on your share

PS has her father allowed for the CGT he will be liable for when he gifts B to her?