SDLT for transfer between spouses and mortgage implications (HELP)

Aliliva

My husband and I are trying to understand what are the tax implications of transferring our properties in joint names. I would really appreciate someone with knowledge or experience in this things to give us some pointers and opinion on what would happen, before I go to a solicitor or call HMRC to get their views.

I own a property that I bought before we even started dating, and it is currently rented out. The property has a mortgage of around 50% of the value of the flat (being conservative and using the price I paid for it 5 years ago), in my name only and due to expire in 4 years. We would like to be able to share the income form this property among the two of us, so that we can limit the amount that goes in high rate tax in the coming years while maintaining a good cashflow. The main questions we have are:

1. Is SDLT due on the consideration if I transfer to him 25% of the value of the property and he doesn't take on any part of the mortgage?
2. Can I keep the mortgage in my name? and do I need to inform the bank of this? Are they likely to not allow the transfer?
3. If he ends up owning 25% of the property, can we still split the rent 50/50 for income tax purposes?

In parallel to this, my husband owns in his name only the house where we currently live, with an outstanding mortgage of around 60% of the house value (again, using the value when the house was bought to be conservative) and the mortgage due to expire in 4 years too. This house is our main and only residency.

1. Is SDLT due on the consideration if he transfers to me 50% of the value of the property and I take on 50% of the mortgage?
2. Would we need to amend the mortgage in this case?
3. Or could he transfer to me only 25% of the property, excluding the mortgage? Is the bank likely to allow the transfer?

We would not do this only for tax reasons, but in preparation to grow our family and with the view to protect the spouse and (if they arrive) kids if the worst was to happen.

Any help is super appreciated!

SDLT_Geek

Aliliva said:

My husband and I are trying to understand what are the tax implications of transferring our properties in joint names. I would really appreciate someone with knowledge or experience in this things to give us some pointers and opinion on what would happen, before I go to a solicitor or call HMRC to get their views.

I own a property that I bought before we even started dating, and it is currently rented out. The property has a mortgage of around 50% of the value of the flat (being conservative and using the price I paid for it 5 years ago), in my name only and due to expire in 4 years. We would like to be able to share the income form this property among the two of us, so that we can limit the amount that goes in high rate tax in the coming years while maintaining a good cashflow. The main questions we have are:

1. Is SDLT due on the consideration if I transfer to him 25% of the value of the property and he doesn't take on any part of the mortgage?
2. Can I keep the mortgage in my name? and do I need to inform the bank of this? Are they likely to not allow the transfer?
3. If he ends up owning 25% of the property, can we still split the rent 50/50 for income tax purposes?

In parallel to this, my husband owns in his name only the house where we currently live, with an outstanding mortgage of around 60% of the house value (again, using the value when the house was bought to be conservative) and the mortgage due to expire in 4 years too. This house is our main and only residency.

1. Is SDLT due on the consideration if he transfers to me 50% of the value of the property and I take on 50% of the mortgage?
2. Would we need to amend the mortgage in this case?
3. Or could he transfer to me only 25% of the property, excluding the mortgage? Is the bank likely to allow the transfer?

We would not do this only for tax reasons, but in preparation to grow our family and with the view to protect the spouse and (if they arrive) kids if the worst was to happen.

Any help is super appreciated!

If you are proceeding with both transactions, then there is a good chance that they will be taken as being "in return for" each other.  That would bring into effect the (nasty) SDLT exchange of land rules, which would mean each "acquisition" is charged at market value.  That could mean a lot of SDLT.

The 3% surcharge for additional properties should not apply though, as thses are transfers between spouses living together.

Aliliva

SDLT_Geek said:

If you are proceeding with both transactions, then there is a good chance that they will be taken as being "in return for" each other.  That would bring into effect the (nasty) SDLT exchange of land rules, which would mean each "acquisition" is charged at market value.  That could mean a lot of SDLT.

The 3% surcharge for additional properties should not apply though, as thses are transfers between spouses living together.

Thank you, we didn't realise this was the case. Would it apply even if the transactions happen a few years apart? We are in no rush to change the names on our current residence, as we can deal with what would happen in the case of one of us passing away through our wills.

If we transfer only the rental property, what would be the likely answer to these questions:

1. Is SDLT due on the consideration if I transfer to him 25% of the value of the property and he doesn't take on any part of the mortgage?
2. Can I keep the mortgage in my name? and do I need to inform the bank of this? Are they likely to not allow the transfer?
3. If he ends up owning 25% of the property, can we still split the rent 50/50 for income tax purposes?

SDLT_Geek

Aliliva said:

SDLT_Geek said:

If you are proceeding with both transactions, then there is a good chance that they will be taken as being "in return for" each other.  That would bring into effect the (nasty) SDLT exchange of land rules, which would mean each "acquisition" is charged at market value.  That could mean a lot of SDLT.

The 3% surcharge for additional properties should not apply though, as thses are transfers between spouses living together.

Thank you, we didn't realise this was the case. Would it apply even if the transactions happen a few years apart? We are in no rush to change the names on our current residence, as we can deal with what would happen in the case of one of us passing away through our wills.

If we transfer only the rental property, what would be the likely answer to these questions:

1. Is SDLT due on the consideration if I transfer to him 25% of the value of the property and he doesn't take on any part of the mortgage?
2. Can I keep the mortgage in my name? and do I need to inform the bank of this? Are they likely to not allow the transfer?
3. If he ends up owning 25% of the property, can we still split the rent 50/50 for income tax purposes?

The "exchange of land" rules can apply if one transaction is in return for the other, even if there is a time gap between the two.  It sounds as if you might go ahead with the rental property anyway without any understanding or arrangement that the other property will change into joint ownership.  Yes, intending to deal with the other property by Will should get rid of the SDLT issue.

You might need to think again about what you mean by 25% of the value of the property.  You might mean 50% of the property (so that after the 50% mortgage is paid off, he gets 25% of the value)?

Usually if a 50% share in a property is transferred, then SDLT will be due on 50% of the mortgage debt.  Perhaps 50% of the mortgage debt is under £250,000 so there is no SDLT due anyway?  Otherwise there are nuances about cases where none of the rights and liabilities of the parties in respect of the debt changes.  Where (unusually) there are no changes, then the debt should not be relevant for SDLT.

Aliliva

Thank you again! The more I read your reply, the more I think we should speak with some tax advisor and a solicitor before doing anything.

Yes, I meant transferring in my husband name 25% of the property, and keep in my name the remaining equity (25% of the total value) and the mortgage (50% of the total value). But you raise a good point, the mortgage debt is less than £250k as it stands, so even if he took up 50% of it his "consideration" would be exempt from SDLT. Or have I got this wrong?

SDLT_Geek

Aliliva said:

Thank you again! The more I read your reply, the more I think we should speak with some tax advisor and a solicitor before doing anything.

Yes, I meant transferring in my husband name 25% of the property, and keep in my name the remaining equity (25% of the total value) and the mortgage (50% of the total value). But you raise a good point, the mortgage debt is less than £250k as it stands, so even if he took up 50% of it his "consideration" would be exempt from SDLT. Or have I got this wrong?

Given that the total mortgage debt is less than £250K and the transfer is to a spouse, you should not be in SDLT territory on this transfer.

It would help to know the value of the two properties.  If low enough, the exchange of land rules might not result in a such a large charge after all.

Aliliva

SDLT_Geek said:

It would help to know the value of the two properties.  If low enough, the exchange of land rules might not result in a such a large charge after all.

The rental property is valued around £280k, while our current house is around £330k. We haven't had them valued recently, these figures are the ones the current estimates from the banks, based upon their HPI calculations.

SDLT_Geek

Aliliva said:

SDLT_Geek said:

It would help to know the value of the two properties.  If low enough, the exchange of land rules might not result in a such a large charge after all.

The rental property is valued around £280k, while our current house is around £330k. We haven't had them valued recently, these figures are the ones the current estimates from the banks, based upon their HPI calculations.

It sounds as if the SDLT position would be alright, on these figures, and on transactions between spouses, if you did an exchange, say of 50% in one property in return for 50% in the other property.  The value of each 50% share would be under the £250,000 threshold which applies for standard rates of SDLT.

So when you get advice, perhaps it will make sense after all to plan to do the two things at the same time.

For anyone else who comes to this in the future, it would be different for a couple who are not married / not in a civil partnership.

Aliliva

thank you so much! I have started contacting a couple of solicitors and will enquire about carrying out both things at once. Hopefully I'll remember to come back and update the post once things are progressing