Removing name from title deed - any tax/CGT implication?

maxxpayne

Hi There,

Somewhat complicated situation so we're weighing in options.

Background:

My partner an I are in the process of buying a house. I say partner as we only had a religious wedding ceremony and never bothered to officially register the marriage or civil partnership.

My partner's name is on a property deed alongside with her two siblings. The property itself was bought by my partner's father outright with cash and my partner didn't contribute to the purchase of the property. The property is rented out and the income goes to my partner's father and she doesn't get anything from it.

I'm selling my property to purchase our next home, which will be our new home. I'm the sole owner of the property being sold and for the new property we've decided that both our names will be on it and we're proceeding accordingly. Mortgage has been approved etc.

The issue we have now is that I think that because my partner's name is already on a property, even though she has nothing to do with it and lives with me and will be moving no to the new property as main home, the purchase of the new property with her name on it will count as a second home purchase, resulting in additional SDLT payment, which will be significant.

Assuming the above if true, we're contemplating options.

Option 1 - Get into a civil partnership

We've already made an appointment to give notice of civil partnership and then we have to wait 29 days which will take us very close to our completion date, but we will be officially in a civil partnership before completion of the new house. I assume because we will now be in a civil partnership, the new property will be deemed as the main residence and standard SDLT will apply.

Option 2 - Remove my partner's name from existing property deed

This looks appealing as it looks like the simplest option? Just fill in a couple of forms and submit to land registry. 

The question here is, are there any tax/CGT implications? Since my partner never paid for anything or will profit from relinquishing her name from the deed I think it's fine. What I don't know about is are there tax implications for her siblings, as they will technically take on her share. Again, I think not but I thought I would ask nevertheless.

Brie

Option 1 - congrats on your pending "nuptials!"   But that won't make any difference on whether your partner is considered to be in her main residence or not.  She lives there, that's her main residence.  Of course it will also simplify many other tax things way down the line so sounds like a good MSE type thing to do.

Option 2 - my first question would be why is your partner's name on the deed.  And just because she didn't buy the property herself doesn't necessarily mean she won't have tax implications.  If one inherits a property and then sells it 10 years later having never lived on it CGT is due.  I can't see that this is very different.  But there's better people than me to advise on this bit who will no doubt jump in shortly.

Bookworm105

option 1
you state partner currently resides in her own (ie father's) property. That is an important fact.
 
- as she is NOT living with you she cannot be deemed to have replaced her main home even if she is legally married to you since she does not live with you. Therefore the higher rate SDLT would be payable unless she disposes of her residence. 

- if she did move in with you and gets legally married before the completion date of the new (joint) purchase, then yes, the married couple will not have to pay higher rate SDLT  as she would qualify for the rule allowing married couple living together to be treated as both replacing their main home, even if one of them continues to own a property in sole name - see example 1

SDLTM09810 - SDLT - higher rates for additional dwellings: Condition D - further examples - HMRC internal manual - GOV.UK

option 2 
it appears she has no beneficial interest in the property and therefore is not liable to CGT on "disposal" of it.
It does beg the question why was partner included on the deeds in the first place if she willing to "give up" the property for zero money

In essence she has gifted ("disposed of") her share to the siblings for nothing. However, in technical terms, partner never had a financial interest and therefore the siblings acquire her share at whatever the market value was at the date partner was first added to the deeds of the property.
In other words siblings are treated as owners from the outset. That may have CGT implications for them if they were not living in it during that time as their main/only home.

Sounds as though father was trying to DIY his inheritance planning but it is now unravelling? So what will partner get as her inheritance in lieu of a share of the property?

debt_free_delilliah

I don’t think being legally married or not makes any difference. The 2nd home higher rate is dependent on whether any of the homes being sold/moved out of are main residences or not. The act of marriage doesn’t affect what counts as a main residence. It’s more the length of time that someone has lived in a property, contributed  to it etc. 

I am hopefully completing on a house move this week but as I am swapping a main residence for a main residence then I don’t pay the higher rate. I am in the title deeds of another property which was 50% transferred to me following my mother’s death. It hasn’t been my main residence for circa 15 years. 

maxxpayne

you state partner currently resides in her own (ie father's) property. That is an important fact.

Sorry if I accidentally implied that - that is not the case. We have been living together in my property since we have been together since 2015.

It does beg the question why was partner included on the deeds in the first place if she willing to "give up" the property for zero money

The property is a BTL that my partner's father earns income from while he is alive.

Sounds as though father was trying to DIY his inheritance planning but it is now unravelling? So what will partner get as her inheritance in lieu of a share of the property?

100% this. I guess my partner has to trust her siblings to do the right thing in the worst case scenario.

maxxpayne

debt_free_delilliah said:

I don’t think being legally married or not makes any difference. The 2nd home higher rate is dependent on whether any of the homes being sold/moved out of are main residences or not. The act of marriage doesn’t affect what counts as a main residence. It’s more the length of time that someone has lived in a property, contributed  to it etc. 

I am hopefully completing on a house move this week but as I am swapping a main residence for a main residence then I don’t pay the higher rate. I am in the title deeds of another property which was 50% transferred to me following my mother’s death. It hasn’t been my main residence for circa 15 years. 

That would be music to my ears. My partner has never lived in the property that has her name on it and have been living with me for the last 10 years.

maxxpayne

From https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

If you’re replacing your main residence

You will not pay the extra 5% SDLT if both of the following apply:

• the property you’re buying is replacing your main residence
• your previous main residence was sold within 36 months of completing your new purchase

If you have not sold your main residence on the day you complete your new purchase, you’ll have to pay higher rates. This is because you own 2 properties.

Check if you’re eligible for a refund of the higher rates of SDLT.

So there's no marriage clause mentioned here at all!

Bookworm105

debt_free_delilliah said:

I don’t think being legally married or not makes any difference. The 2nd home higher rate is dependent on whether any of the homes being sold/moved out of are main residences or not. The act of marriage doesn’t affect what counts as a main residence. It’s more the length of time that someone has lived in a property, contributed  to it etc. 

I am hopefully completing on a house move this week but as I am swapping a main residence for a main residence then I don’t pay the higher rate. I am in the title deeds of another property which was 50% transferred to me following my mother’s death. It hasn’t been my main residence for circa 15 years. 

I suggest you read the link I posted. Legislation & HMRC disagree with your view re marriage....
Condition D very much takes account of marriage

this may also help you:
Where joint purchasers (who are not spouses/civil partners) previously lived together in a property owned by only one of the joint purchasers, the disposal of this previous property will only meet the “replacement of main residence” condition for the previous owner, and not for the purchaser with no ownership interest in the “old” property.  
SDLTM09800 - SDLT - higher rates for additional dwellings: Condition D - general - Para 3(6) Sch 4ZA FA2003 - HMRC internal manual - GOV.UK

maxxpayne

Bookworm105 said:

debt_free_delilliah said:

I don’t think being legally married or not makes any difference. The 2nd home higher rate is dependent on whether any of the homes being sold/moved out of are main residences or not. The act of marriage doesn’t affect what counts as a main residence. It’s more the length of time that someone has lived in a property, contributed  to it etc. 

I am hopefully completing on a house move this week but as I am swapping a main residence for a main residence then I don’t pay the higher rate. I am in the title deeds of another property which was 50% transferred to me following my mother’s death. It hasn’t been my main residence for circa 15 years. 

I suggest you read the link I posted. Legislation & HMRC disagree with your view re marriage....
Condition D very much takes account of marriage

this may also help you:
Where joint purchasers (who are not spouses/civil partners) previously lived together in a property owned by only one of the joint purchasers, the disposal of this previous property will only meet the “replacement of main residence” condition for the previous owner, and not for the purchaser with no ownership interest in the “old” property.  
SDLTM09800 - SDLT - higher rates for additional dwellings: Condition D - general - Para 3(6) Sch 4ZA FA2003 - HMRC internal manual - GOV.UK

Thank. Also someone pointed out Example 2. That's damning. Higher SDLT rate will apply.

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09810

Keep_pedalling

maxxpayne said:

you state partner currently resides in her own (ie father's) property. That is an important fact.

Sorry if I accidentally implied that - that is not the case. We have been living together in my property since we have been together since 2015.

It does beg the question why was partner included on the deeds in the first place if she willing to "give up" the property for zero money

The property is a BTL that my partner's father earns income from while he is alive.

Sounds as though father was trying to DIY his inheritance planning but it is now unravelling? So what will partner get as her inheritance in lieu of a share of the property?

100% this. I guess my partner has to trust her siblings to do the right thing in the worst case scenario.

If he is receiving the income then he has the beneficial interest in the property, which means it is still part of his estate for IHT purposes. Not such a cunning plan. 

Bookworm105

maxxpayne said:

The property is a BTL that my partner's father earns income from while he is alive.

so have siblings been receiving any share of the rental income or does it all go to father?

if all to father then father retains sole beneficial ownership of the property and if so he remains liable for all CGT if sold whilst he is still alive or when he dies it will form part of his estate for IHT purposes 

in this instance tax is based on beneficial ownership, not who is on the deeds, ie  has legal ownership