SDLT Calculation when buying into girlfriends house

JDi

Hi

I have no idea how to do this calculation and to be honest, i have spoken to a couple of different FA’s who have given me differing answers.

I would like to buy into my girlfriends house. I have my own buy to let property that i have a long term tenant in and will therefore be eligible for the additional rate SDLT.

Situation as follows. House approx value 210k, girlfriend sole owner on deeds and mortgage (which is currently 113k outstanding). We would like to use our solicitors to transfer 50% of the house into my name and half the mortgage liability into my name (lender has given the affordability thumbs up). I will be investing 65K into the house but we are both happy it will be 50/50. We would like to do this now although my 65K wont be used until we switch deals in November this year.

Does anyone know how the SDLT is calculated for this situation?

Bookworm225

if 65k in cash is  going to be paid to GF in November but you will acquire the full 50% ownership now in return for immediately taking on 50% of o/s mortgage then the total chargeable consideration for that 50% is known from the outset and is payable within 30 days of the completion date of taking ownership of the 50%

Therefore (113/2) + 65 = 121,500 so falls in the bottom tier (5%) of the higher rate SDLT bands, thus 121,500 x 5% = £6,075 tax payable

You fail the test for claiming deferral of the tax on 65k since
a) that sum has been set from the outset as payable, ie it is not contingent on anything else; and
b) it is due within 6 months of the effective date at which you acquire the 50% ownership, May > Nov = 6 months 

SDLTM50900 - Procedure: deferring payment in case of contingent or uncertain consideration FA03/S90: when application may be made - HMRC internal manual - GOV.UK

Deferred Consideration and Stamp Duty - Burges Salmon

40-200 Postponed or deferred consideration | Croner-i Tax and Accounting

JDi

Hi Bookworm

You sound like you know your stuff with this so thanks for the input. Hopefully you wont mind a few more questions?

1, The reason for me not putting money down now is because it will incur an ERC on the mortgage. The deal is up Oct/Nov so it would be at this point i put the money down when we were getting a new mortgage deal from a provider. My girlfriend is happy to give me 50% ownership now regardless of how much money i put into it. Are you saying that if i put in only put 30k in the calc would be (113/2)+30 =86.5k therefore £4325 tax? No cash will actually be paid to my girlfriend, it will just be used to reduce the mortgage at the point we take out a new deal together in Nov.


2, Going forwards, once i am on the deeds and mortgage, if we decide to move home in say 2 years, i think im correct in saying that i would at this point pay normal rate stamp duty (despite me still owning another house myself). This would be because i would be moving my primary residence at that point?

Thanks

silvercar

2 is definitely correct as you are moving your primary residence and not increasing the number of properties you own.

for 1, I would ask what is the urgency of doing this now rather than in November? You could drip feed some money across to your girlfriend over the next 6 months to reduce the lump sum payment and therefore the SDLT rate eg pay rent if you are already living in the property (she can earn 7500 tax free under the rent a room scheme) pay at least your fair share of groceries and utilities etc

Bookworm225

2 correct

1  "it will just be used to reduce the mortgage at the point we take out a new deal together"
Do you mean you will pay 65k off the existing mortgage (once ERC has ended) so that the amount you need to when you jointly remortgage is lower?
Doing so does not alter the fact the chargeable consideration being given for your share of the property is:
half the o/s mortgage + money injected by you 

JDi

That is exactly what i mean yes.

What you have said is brill and makes sense. I had read about the chargeable consideration but its not an easy thing to calculate and there is very little help about it.

I guess my final question would be if there is anything i can legally do to reduce SDLT, i.e by the timings of or what i do with my 65K.

The ultimate goal is to use 'my' 65K to make the mortgage cheaper. If however there is someway that we can  save money that might be worth considering.

In response to silvercars reply..........

There is no real urgency no, we are trying to work out how we can minimise our SDLT to achieve the end goal which is joint on the mortgage and deeds at 50% each.
Your idea sounds interesting and not something i had considered. Are you suggesting i could 'give' my girlfriend money over the next 6 months so that she could then use this money to invest in the house at remortgage time, rather than me investing it.

When i say 'give my girlfriend money', this would obviously be in the form of rent payments? That way i might be able to get my investment in the property down to 57.5k for example?

I might add incase anyone was wondering that we have been together 10 years and share 2 children and trust is high so no consideration needs given to how wise this situation is.

silvercar

JDi said:

That is exactly what i mean yes.

What you have said is brill and makes sense. I had read about the chargeable consideration but its not an easy thing to calculate and there is very little help about it.

I guess my final question would be if there is anything i can legally do to reduce SDLT, i.e by the timings of or what i do with my 65K.

The ultimate goal is to use 'my' 65K to make the mortgage cheaper. If however there is someway that we can  save money that might be worth considering.

In response to silvercars reply..........

There is no real urgency no, we are trying to work out how we can minimise our SDLT to achieve the end goal which is joint on the mortgage and deeds at 50% each.
Your idea sounds interesting and not something i had considered. Are you suggesting i could 'give' my girlfriend money over the next 6 months so that she could then use this money to invest in the house at remortgage time, rather than me investing it.

When i say 'give my girlfriend money', this would obviously be in the form of rent payments? That way i might be able to get my investment in the property down to 57.5k for example?

I might add incase anyone was wondering that we have been together 10 years and share 2 children and trust is high so no consideration needs given to how wise this situation is.

That is what I meant, but you are drip feeding information in the same way I was suggesting you drip feed money! I'm not sure how paying rent through the rent a room scheme could be seen as totally above board when you have 2 children living with you both, so scratch that idea. But there would be nothing wrong with you shouldering the household expenses while your partner saves money to reduce the mortgage. The net result would be the same.

Another option would be to get married or enter a civil partnership - you could then transfer to her name for her to reduce the mortgage. Transfers of funds between spouses are ignored for tax purposes. So she could reduce the mortgage and then you could put the house and mortgage in joint names. The only SDLT would be based on half the mortgage at the time you do the transfer.

JDi

Apologies for the 'drip feed'..... not intentional but the more i read the more i learn things which i thought bore no relevance actually do.

It appears from what you say that if my girlfriend reduces the mortgage it is beneficial to us. So how do i understand and find out how far we can go with this? For example, if she uses her own savings of say 40k to reduce the mortgage, whats to stop me gifting her 40k back into her savings lets say 6 months after it has all been sorted?

Bookworm225

 whats to stop me gifting her 40k back into her savings lets say 6 months after it has all been sorted?

in a word... nothing
Such action would not be directly connected with your acquisition of your share of the property (if done x months after)

JDi

Ok great, so the following would be perfectly fine.

Find a new mortgage deal in November when her current one expires. My girlfriend at this point uses 50K from HER own savings to reduce the mortgage amount to 62K and our solicitors put the house and mortgage in BOTH our names 50/50 split and responsibility.

This makes the SDLT 62/2 = 31K chargeable concern so £1550 at 5%.

Then 6 months later i give my girlfriend 50K.

That is all perfectly fine?