Transfer of Equity - Does it have to be 50/50 between two people?

throneofblood

Morning all,

My partner has a BTL property solely in her name and she wants to put me on the mortgage without remortgaging. There is a mortgage of around £113k on the property, it's worth around £155k.

No money will change hands.

We've been told the best way to do this is via Transfer of Equity.

Do we have to split the equity 50/50?

If we split the equity 90/10 (or any other split) in her favour will that lessen SDLT payable?

Will we be able to register as Tenants in Common and split the rent 90/10 in my favour?

Thanks for reading.

SDLT_Geek

throneofblood said:

Morning all,

My partner has a BTL property solely in her name and she wants to put me on the mortgage without remortgaging. There is a mortgage of around £113k on the property, it's worth around £155k.

No money will change hands.

We've been told the best way to do this is via Transfer of Equity.

Do we have to split the equity 50/50?

If we split the equity 90/10 (or any other split) in her favour will that lessen SDLT payable?

Will we be able to register as Tenants in Common and split the rent 90/10 in my favour?

Thanks for reading.

For SDLT you need to be looking at the underlying shares in which ownership of the property is to be held. This does not need to be 50-50.

If no money is changing hands then the “chargeable consideration“ will be a proportion of the mortgage debt equal to your proportionate share in the property.

For example if you take a 30% share in the property and are responsible for 30% of the mortgage debt, then the chargeable consideration would be 30% of about £113k which is about 33.9k.  That is below the SDLT threshold of £40,000, so no SDLT should be due.

If, on the other hand, you take a 50% share in the property and are responsible for 50% of the debt, then the chargeable consideration is £56.5k.  If, as seems likely, the higher rates of SDLT apply then SDLT would be due at 5%, so £2,825.

throneofblood

Thanks for that detailed explanation, it makes sense to me now.

A follow up question ... if I take , say 30% of the equity can we still be 'tenants in common' and split any rental profits in any we choose?

Thanks in advance.

Bookworm225

throneofblood said:

Thanks for that detailed explanation, it makes sense to me now.

A follow up question ... if I take , say 30% of the equity can we still be 'tenants in common' and split any rental profits in any we choose?

Thanks in advance.

i assume you are not legally married to your partner?

Therefore to have an unequal profit the LEGAL ownership of the property must be as Tenants In Common, it cannot be as Joint Tenants. Unless it is TiC there is no "share" that can be split as with JT each person owns an equal share of the property and thus with 2 owners the split can only be 50/50

Her mortgage lender may, or may not, allow you to be on the mortgage without being a legal owner, but HMRC will not as without legal ownership you have no entitlement to the income, so it would remain tax liability even if she gave you the cash.. 

As unmarried partners owning as TiC, the income can be split anyway you want
If you are married, then there are a couple more technical steps you have to do when splitting the income.

throneofblood

Bookworm225 said:

throneofblood said:

Thanks for that detailed explanation, it makes sense to me now.

A follow up question ... if I take , say 30% of the equity can we still be 'tenants in common' and split any rental profits in any we choose?

Thanks in advance.

i assume you are not legally married to your partner?

Therefore to have an unequal profit the LEGAL ownership of the property must be as Tenants In Common, it cannot be as Joint Tenants. Unless it is TiC there is no "share" that can be split as with JT each person owns an equal share of the property and thus with 2 owners the split can only be 50/50

Her mortgage lender may, or may not, allow you to be on the mortgage without being a legal owner, but HMRC will not as without legal ownership you have no entitlement to the income, so it would remain tax liability even if she gave you the cash.. 

As unmarried partners owning as TiC, the income can be split anyway you want
If you are married, then there are a couple more technical steps you have to do when splitting the income.

We aren't married.

I'm not sure what the rest of your post means, except that we will have to be 'tenants in common'.

Are you saying we can't/shouldn't do the Transfer of Equity? or something else ... sorry for being so dense.

Bookworm225

throneofblood said:

Bookworm225 said:

throneofblood said:

Thanks for that detailed explanation, it makes sense to me now.

A follow up question ... if I take , say 30% of the equity can we still be 'tenants in common' and split any rental profits in any we choose?

Thanks in advance.

i assume you are not legally married to your partner?

Therefore to have an unequal profit the LEGAL ownership of the property must be as Tenants In Common, it cannot be as Joint Tenants. Unless it is TiC there is no "share" that can be split as with JT each person owns an equal share of the property and thus with 2 owners the split can only be 50/50

Her mortgage lender may, or may not, allow you to be on the mortgage without being a legal owner, but HMRC will not as without legal ownership you have no entitlement to the income, so it would remain tax liability even if she gave you the cash.. 

As unmarried partners owning as TiC, the income can be split anyway you want
If you are married, then there are a couple more technical steps you have to do when splitting the income.

We aren't married.

I'm not sure what the rest of your post means, except that we will have to be 'tenants in common'.

Are you saying we can't/shouldn't do the Transfer of Equity? or something else ... sorry for being so dense.

transfer of equity is just the name given to the process by which the legal ownership is changed in your circumstances
,
To meet your need to be able to split the income from the property, the process will end up with you owning it as Tenants In Common with a specific split of the property between you, and that share % must be what you report to HMRC as your share of the income.

throneofblood

Bookworm225 said:

transfer of equity is just the name given to the process by which the legal ownership is changed in your circumstances
,
To meet your need to be able to split the income from the property, the process will end up with you owning it as Tenants In Common with a specific split of the property between you, and that share % must be what you report to HMRC as your share of the income.

Thank you. It's clear to me now.

I've spent some time reading about the SDLT position and, as per, have ended up more confused than when I started.

Can you clarify the SDLT position, I'm particularly confused as to whether the £0 - £40,000 is based on the market value of the property or the outstanding mortgage value?

Thanks in advance.

SDLT_Geek

throneofblood said:

Bookworm225 said:

transfer of equity is just the name given to the process by which the legal ownership is changed in your circumstances
,
To meet your need to be able to split the income from the property, the process will end up with you owning it as Tenants In Common with a specific split of the property between you, and that share % must be what you report to HMRC as your share of the income.

Thank you. It's clear to me now.

I've spent some time reading about the SDLT position and, as per, have ended up more confused than when I started.

Can you clarify the SDLT position, I'm particularly confused as to whether the £0 - £40,000 is based on the market value of the property or the outstanding mortgage value?

Thanks in advance.

Because no money will change hands, the "chargeable consideration" for SDLT will be worked out on a proportion of the outstanding mortgage debt.

That is assuming there is nothing else given in return, such as another property transaction.

Bookworm225

throneofblood said:

Can you clarify the SDLT position, I'm particularly confused as to whether the £0 - £40,000 is based on the market value of the property or the outstanding mortgage value?

what do you not understand about the Geek's explanation already given...?

SDLT_Geek said:

For example if you take a 30% share in the property and are responsible for 30% of the mortgage debt, then the chargeable consideration would be 30% of about £113k which is about 33.9k.  That is below the SDLT threshold of £40,000, so no SDLT should be due.