Stamp Duty - Unmarried, No Mortgage, No Consideration gifted transfer of equity

RD88

Hi Everyone,

I've done a few searches on this forum already and couldn't find the answer, so apologies if this is really frequently asked or there's a thread already. Also please feel free to move this post if it's in the wrong place.

My boyfriend and I have been together for 12+ years. We are engaged, but honestly haven't really ever got around to getting married, we're both just aren't keen on spending so much money and don't think think it will really change much. Neither of us are against the idea but similarly are quite happy to plod along as things are too.

We own a modest little house together (joint tenancy, not tenants in common, which was bought in 2015. We've had a 2 year fix followed by a 5 year fix which ends 31st December as mortgages rates have shot up so much we've decided to use our savings to redeem our now smallish mortgage in full at the end of the term.

We're looking at moving out the area, back close to family, houses aren't really selling especially quickly around here, it's like the brakes have gone on. But we are seeing that a lot of the houses around us are renting out especially quickly, two of our neighbours let signs went up last week (one being our next door neighbours who's house is the unextended duplicate of ours and has always been a rental since we moved in) and we were kind of shocked when we had a quick snoop online to see how much there're renting for, 3+ times what we used to pay in rent back in the day for similar before we bought.

We never thought about a rental before, although I've worked for private rental companies and currently work for a large housing association with MR subs so am familiar with the sector. I know many people who are still jumping on the BTL thing, but honestly I was always quite put off by the tax eating into yields, second home stamp duty too always seemed quite a put off. I've looked online at the stamp duty criteria and was a little surprised to find that once the mortgage is cleared, as we have no liability and provided we make no consideration payment for the transfer of equity, either one of us could gift their equity in the property to the other and there'd be no stamp duty to pay because we aren't married. Is this really the case or have I misunderstood something?

Given we'd probably be looking to buy a second home to actually live in, the plan would be to buy it in the name of whichever one of us no longer has an interest in our old house, would this actually work to avoid paying the 2nd home surcharge? I doubt a lender would allow us two names on the mortgage and only one on the property, but not sure this would actually matter than much for us. I earn about 60k and my boyfriend 76k no dependents and we are not really after anything too fancy, we probably wouldn't be looking to borrow more than 150-170k so could hopefully even just keep the mortgage application to one of us if needed.

Is my understanding of the second home surcharge correct. Is there be any additional things we should be considering? Like would there be any liability due if we were say to end up getting married at some point in the future. Assuming the offset of this initial SDLT saving here is that you don't get the double up of personal allowances like the property income allowance and CGT allowance (if the time comes to sell)

propertyrental

I believe you are right - if you simply transfer ownership into a single name, with zero consideration, there would be no SDLT to pay.
https://www.gov.uk/stamp-duty-land-tax

The other party could then buy a property which would not attract the additional SDLT as it would be their only property.

few mortgage lenders will lend on a sole ownership property with 2 names on the mortgage, so that person would probably need sufficient income on their own to get a mortgage. There may be a few lenders who will take the 2nd person's income into account- see an independent mortgage broker.

You should consider the overall security of you both though. Being unmarried, should you split up, the one not owning the 'home' would have few, if any, rights to it (though that might be offset by their owning the rented property).

https://forums.moneysavingexpert.com/discussion/5180214/tenancies-in-eng-wales-guides-for-landlords-and-tenants/p1

RD88

Hi Propertyrental,

Thank you very much for your response (and for reading through my giant first post, life story much haha) appreciate the link very much I will take a look at this, we're not sure renting out is 100% for us, but do feel like it's worth exploring now we've sort of come to this cross roads.

You do raise a very good point about security, I think we were both thinking at a worst case like you say, if both houses are similar value we've both at least got something each. We do have a strong degree of trust to even consider this, however I completely follow you're point and quite frankly it's very appreciated and exactly the same advice I'd give to anyone on this too.

I suppose I'm not sure if the whole security issue could even be mitigated if we were to get married afterwards. I.e make the transfer of equity to use as a rental, buy the new home, then get married (given we do plan to at some point anyway) I'd have to try and find whether there's anything that would trigger a liability if for instance you were to marry within 12 months or something. 

propertyrental

I'm 99% certain that SDLT (and/or the additional 2nd property SDLT) is only payable on purchase. If you were to marry after splitting the properties there'd be no tax.

Think about it- 1000s of couples who each own a home get married without any SDLT becoming due. Some sell one property, or let it out, or whatever. It is a purchase that triggers the tax.

Mutton_Geoff

RD88 said:

we probably wouldn't be looking to borrow more than 150-170k so could hopefully even just keep the mortgage application to one of us if needed.

How will you answer the standard mortgage company question "will anyone else over 18 be living at the property after completion"?

Rather than examining all the tax savings, consider whether you are prepared to start a business with a large loan (which is all BTL is).

user1977

Mutton_Geoff said:

RD88 said:

we probably wouldn't be looking to borrow more than 150-170k so could hopefully even just keep the mortgage application to one of us if needed.

How will you answer the standard mortgage company question "will anyone else over 18 be living at the property after completion"?

Honestly, I presume? Lenders don't necessarily have a problem with the property (and mortgage) being in the name of only one half of a couple - but the partner will need to sign a consent to the mortgage.

RD88

I guess yes we'd have to see how they react with that, ie someone else living in the property. I do know a lot of people who move in with partners that have mortgaged houses and it's not usually an issue but I suppose that's because it's after they've drawn it. I'm not really dead set on a BTL as such, it's just that right now around here that seems to be more of an option than selling easily. The market seems almost in standstill. I suppose you're right Mutton Geoff we're technically financing a BTL with a residential mortgage rather than selling up and using the equity to move with no mortgage. But is it really such a bad thing when it seems like the faster option with the market dead. We're not trying to max out our borrowings on the new place. We're looking for around 150 on a joint income of 136 (albeit we probably will only apply for the mortgage for one of us) mainly just so we can be a bit closer to family and the communities we grew up with. I'll do some reading up. 

Mutton_Geoff

RD88 said:

I guess yes we'd have to see how they react with that, ie someone else living in the property. I do know a lot of people who move in with partners that have mortgaged houses and it's not usually an issue but I suppose that's because it's after they've drawn it. I'm not really dead set on a BTL as such, it's just that right now around here that seems to be more of an option than selling easily. The market seems almost in standstill. I suppose you're right Mutton Geoff we're technically financing a BTL with a residential mortgage rather than selling up and using the equity to move with no mortgage. But is it really such a bad thing when it seems like the faster option with the market dead. We're not trying to max out our borrowings on the new place. We're looking for around 150 on a joint income of 136 (albeit we probably will only apply for the mortgage for one of us) mainly just so we can be a bit closer to family and the communities we grew up with. I'll do some reading up. 

It's just a bad idea to become an accidental landlord or one by circumstance. I'd hate for you to become one of the many who come back here in a couple of years asking how to serve a S21 or what annual checks are needed or what to do when the tenant floods the bathroom etc 

Sliding into BTL because it's more convenient isn't a good way to start a new business but each to their own, you might enjoy it and make good profits. It doesn't matter how large or small your mortgages are, you are still investing in a new business and due consideration must be given to the implications.

stig

Just to add - your plan works if this genuinely reflects how the properties will be owned i.e. one owning one property and one the other. What counts for SDLT purposes is beneficial ownership which is not necessarily the same as legal ownership. In this case, if you split up would you really be happy with one person taking the mortgaged house and one the house free of any mortgage - or would you in  fact intend to share the equity in both houses? If, regardless of whose name you put them in, you both feel you own half of each house then this won’t work - not to say you won’t get away with it.

Brie

The only way I'd consider renting out a property is via an agency that would deal with everything.  And preferably guarantee the rent.  Which would lose you a big chunk probably.  But it would save a lot of hassle (I believe) and mean you didn't get the calls at 2 am about being locked out or the boiler leaking.  

As for the rest of it - being unmarried does carry some risks.  But some of those will be covered if you have mirror wills (or near enough) so that the other gets the property should anything happen to one of you.  

All that said - I thought that even unmarried you each couldn't have a property as your principal residence for tax purposes.   That might not be an issue if you sold the current place with in a certain time period.

propertyrental

Brie said:

...
All that said - I thought that even unmarried you each couldn't have a property as your principal residence for tax purposes.   That might not be an issue if you sold the current place with in a certain time period.

I don't think the OP intends to use the (current) rented as principal residence (might be wrong!).

Clearly Principal Residence would be the new, mortgaged, property, which would have Capital Gains Tax implications on the rented-out property. But that's part and parcel of having a rental business.