Stamp duty - One first time buyer, one not

liorgs

So I’m hoping someone can shed some light on a Stamp Duty scenario. A lot of googling and searching here hasn't given me a concrete answer and I'm thinking about instructing a tax lawyer to help, but thought I'd gather some advice here first.

Here’s the background: I currently own a rental property with my sister (50/50 tenants in common). My partner and I are now looking to buy our first home together in London. Since I already own a property and we’re not selling the rental, it means I won’t qualify for first-time buyer status, and we’d need to pay the additional SDLT surcharge if we buy together.

We are looking at places around the stamp duty threshold ~625k. The difference in tax owed is huge £~10k if my partner is sole owner and £~50k if we are joint owners.

Here’s the plan we’re considering: I gift my partner the deposit and they purchase the property solely in their name, using the gifted money and taking out a mortgage based on their own salary (lender has approved lending on just her salary). I would still live in the house with them and contribute 50% of the mortgage payments through them or a joint account. I accept that I would not be an owner and the risks that come with that. My questions are about the tax implications.

My main questions are:

1. Would gifting the deposit to my partner, who then buys the house alone, be considered tax evasion or is this legitimate tax planning?

2. Are there any potential tax implications in the future, such as if they sold the property and we then purchased another as 50/50 owners?

3. Could my 50% contribution to the mortgage be seen as a beneficial interest in the property for tax purposes, even though I’m not listed as an owner.

Any insight or experiences with similar situations would be greatly appreciated.

SDLT_Geek

liorgs said:

So I’m hoping someone can shed some light on a Stamp Duty scenario. A lot of googling and searching here hasn't given me a concrete answer and I'm thinking about instructing a tax lawyer to help, but thought I'd gather some advice here first.

Here’s the background: I currently own a rental property with my sister (50/50 tenants in common). My partner and I are now looking to buy our first home together in London. Since I already own a property and we’re not selling the rental, it means I won’t qualify for first-time buyer status, and we’d need to pay the additional SDLT surcharge if we buy together.

We are looking at places around the stamp duty threshold ~625k. The difference in tax owed is huge £~10k if my partner is sole owner and £~50k if we are joint owners.

Here’s the plan we’re considering: I gift my partner the deposit and they purchase the property solely in their name, using the gifted money and taking out a mortgage based on their own salary (lender has approved lending on just her salary). I would still live in the house with them and contribute 50% of the mortgage payments through them or a joint account. I accept that I would not be an owner and the risks that come with that. My questions are about the tax implications.

My main questions are:

1. Would gifting the deposit to my partner, who then buys the house alone, be considered tax evasion or is this legitimate tax planning?

2. Are there any potential tax implications in the future, such as if they sold the property and we then purchased another as 50/50 owners?

3. Could my 50% contribution to the mortgage be seen as a beneficial interest in the property for tax purposes, even though I’m not listed as an owner.

Any insight or experiences with similar situations would be greatly appreciated.

I assume you are buying in England, with the relevant stamp duty being stamp duty land tax.

The SDLT analysis is based on the beneficial ownership of the property, not who is named as the registered proprietor.  It seems likely that your capital contributions to the purchase could be seen as giving you a beneficial interest.  The idea of a "gift" would likely be looked at with suspicion.

You do not say whether you are married / civil partners.  Presumably not, because that would have been fatal to your strategy anyway.

Others might comment on the attitude of lenders.  I rather expect they will be uncomfortable lending to one person only, knowing that someone else has contributed to the price and intends to live in the property.

There might be another approach though.  That is looking at the 50% share held with your sister.

(a)  Was that inherited in the last three years?

(b) What is the 50% share in the property worth (for this purpose do not take off the amount of any mortgage)?  If it is less than £40,000, then the 5% extra does not apply (though you still fail to qualify as a first time buyer).  If £40,000 or more, would your sister buy you out of all or part of the share?

liorgs

Thanks for your input; it’s really helpful to get clarity on this.

• Yes, we are buying in England, specifically in London.
• We aren’t married currently, though we may marry in the next five years—it’s not an immediate priority.
• Regarding the property I co-own with my sister, I’ve gradually built up my share over six years, beginning with 25% ownership in 2018. The property is currently valued at around £600,000, so my share has always been above the £40,000 threshold.

One additional idea we were considering—though we're uncertain about its feasibility—is whether I could contribute under £40,000 toward the new property and thus avoid being seen as having a beneficial interest. Do you think this might be a viable approach, or would it still likely attract SDLT scrutiny?

liorgs

SDLT_Geek said:

(b) What is the 50% share in the property worth (for this purpose do not take off the amount of any mortgage)?  If it is less than £40,000, then the 5% extra does not apply (though you still fail to qualify as a first time buyer).  If £40,000 or more, would your sister buy you out of all or part of the share?

There's no mortgage on the property (though this doesn't seem to matter for chargeable consideration) and my sister wouldn't be able to buy me out.

GDB2222

SDLT_Geek said:

liorgs said:

So I’m hoping someone can shed some light on a Stamp Duty scenario. A lot of googling and searching here hasn't given me a concrete answer and I'm thinking about instructing a tax lawyer to help, but thought I'd gather some advice here first.

Here’s the background: I currently own a rental property with my sister (50/50 tenants in common). My partner and I are now looking to buy our first home together in London. Since I already own a property and we’re not selling the rental, it means I won’t qualify for first-time buyer status, and we’d need to pay the additional SDLT surcharge if we buy together.

We are looking at places around the stamp duty threshold ~625k. The difference in tax owed is huge £~10k if my partner is sole owner and £~50k if we are joint owners.

Here’s the plan we’re considering: I gift my partner the deposit and they purchase the property solely in their name, using the gifted money and taking out a mortgage based on their own salary (lender has approved lending on just her salary). I would still live in the house with them and contribute 50% of the mortgage payments through them or a joint account. I accept that I would not be an owner and the risks that come with that. My questions are about the tax implications.

My main questions are:

1. Would gifting the deposit to my partner, who then buys the house alone, be considered tax evasion or is this legitimate tax planning?

2. Are there any potential tax implications in the future, such as if they sold the property and we then purchased another as 50/50 owners?

3. Could my 50% contribution to the mortgage be seen as a beneficial interest in the property for tax purposes, even though I’m not listed as an owner.

Any insight or experiences with similar situations would be greatly appreciated.

I assume you are buying in England, with the relevant stamp duty being stamp duty land tax.

The SDLT analysis is based on the beneficial ownership of the property, not who is named as the registered proprietor.  It seems likely that your capital contributions to the purchase could be seen as giving you a beneficial interest.  The idea of a "gift" would likely be looked at with suspicion.

You do not say whether you are married / civil partners.  Presumably not, because that would have been fatal to your strategy anyway.

Others might comment on the attitude of lenders.  I rather expect they will be uncomfortable lending to one person only, knowing that someone else has contributed to the price and intends to live in the property.

There might be another approach though.  That is looking at the 50% share held with your sister.

(a)  Was that inherited in the last three years?

(b) What is the 50% share in the property worth (for this purpose do not take off the amount of any mortgage)?  If it is less than £40,000, then the 5% extra does not apply (though you still fail to qualify as a first time buyer).  If £40,000 or more, would your sister buy you out of all or part of the share?

Commenting on the bit in bold and underlined, I can see why eyebrows might be raised if the OP simply gives his partner the deposit (say £60k, for argument's sake) . That's a lot of money to give someone without expecting anything in return. 

Would it be less controversial if the OP lends his partner the money? It could be an interest free loan, and secured by a second charge on the property - provided the lenders don't object. 

EssexHebridean

I would agree that any lender involved might be raising eyebrows here - not least as if you give your partner a lump as the deposit, the best case scenario is that they will want to see a gifted deposit letter from you (worst case is they will refuse to entertain the idea as you will also be living there). As far as I can see this will effectively remove you from being able to have any claim on the property though - so while I'm sure al is well and lovely between you and your partner now, what happens if that changes in a few years time? Are you happy to accept that in order to dodge the SDLT that is due, you will have done yourself out of an entire property? 

In answer to the point above, I'm not convinced that any lender will accept a second charge being put in place for a loan when the person who the charge was in favour of would be living in the property.

saajan_12

The lender will likely make this plan a non starter anyway - they'd usually ask someone gifting a deposit to sign a letter saying they won't be living in the property and have no expectation of benefitting from the money. If you're currently living with the partner then any such statement would likely not be believed anyway. 

I think your best bets are to pay the SDLT or sell your second property. This is exactly what the new rules are intended for, so there isn't really going to be a way out.. 

SDLT_Geek

liorgs said:

Thanks for your input; it’s really helpful to get clarity on this.

• Yes, we are buying in England, specifically in London.
• We aren’t married currently, though we may marry in the next five years—it’s not an immediate priority.
• Regarding the property I co-own with my sister, I’ve gradually built up my share over six years, beginning with 25% ownership in 2018. The property is currently valued at around £600,000, so my share has always been above the £40,000 threshold.

One additional idea we were considering—though we're uncertain about its feasibility—is whether I could contribute under £40,000 toward the new property and thus avoid being seen as having a beneficial interest. Do you think this might be a viable approach, or would it still likely attract SDLT scrutiny?

Unfortunately this additional idea does not have legs.  Having any beneficial interest in a property makes you a joint "purchaser" for SDLT purposes and so your property owning position is relevant, even if your share is worth under £40,000.

SDLT_Geek

Another thought, there is not another property, which you have not told us about, which you lived in as your only or main residence within the last three years, and which has been sold (or otherwise disposed of) within the last three years?

liorgs

SDLT_Geek said:

Another thought, there is not another property, which you have not told us about, which you lived in as your only or main residence within the last three years, and which has been sold (or otherwise disposed of) within the last three years?

No, the property with my sister is the only property I have ever owned and neither of us has ever resided in it. My partner and I live together in rented accommodation.

Bookworm105

liorgs said:

SDLT_Geek said:

Another thought, there is not another property, which you have not told us about, which you lived in as your only or main residence within the last three years, and which has been sold (or otherwise disposed of) within the last three years?

No, the property with my sister is the only property I have ever owned and neither of us has ever resided in it. My partner and I live together in rented accommodation.

then the purchase with partner will be at the additional rate of SDLT as explained by geek since you go from owning 1 to owning 2 properties