Stamp Duty Calculation When Adding Partner to Property (Remortgage + Cash Contribution)

slonger

Hi everyone,
I’m hoping someone can clarify how the stamp duty consideration should be calculated in this situation.

I currently own a property in my sole name.

• Current mortgage: £172,000

• We’re remortgaging to clear this, and at the same time adding my partner as a 50/50 tenant in common.

• My partner is paying £110,000 from her own funds.

• We will then have a joint mortgage of £62,000 going forward.

The solicitor says the chargeable consideration for SDLT is:

Half of my existing mortgage (£172,000 ÷ 2 = £86,000) + my partner’s £110,000 contribution = £196,000

However, I thought it should be based on:

£110,000 (my partner’s cash contribution) + £31,000 (her half of the new £62,000 mortgage) = £141,000

Can anyone confirm which calculation is correct and why?
Thanks in advance — I’m just trying to understand how HMRC view this type of part transfer / remortgage scenario.

SDLT_Geek

slonger said:

Hi everyone,
I’m hoping someone can clarify how the stamp duty consideration should be calculated in this situation.

I currently own a property in my sole name.

• Current mortgage: £172,000

• We’re remortgaging to clear this, and at the same time adding my partner as a 50/50 tenant in common.

• My partner is paying £110,000 from her own funds.

• We will then have a joint mortgage of £62,000 going forward.

The solicitor says the chargeable consideration for SDLT is:

Half of my existing mortgage (£172,000 ÷ 2 = £86,000) + my partner’s £110,000 contribution = £196,000

However, I thought it should be based on:

£110,000 (my partner’s cash contribution) + £31,000 (her half of the new £62,000 mortgage) = £141,000

Can anyone confirm which calculation is correct and why?
Thanks in advance — I’m just trying to understand how HMRC view this type of part transfer / remortgage scenario.

It would help to know the value of the property, that can help explain the substance of the deal and how the figures work.  Also, as mentioned below, how you expect to service the £62,000 debt as between the two of you.

In the meanwhile, here are some thoughts:

1.  The solicitor appears to have applied the rules for when a property is transferred subject to an existing mortgage, as explained in the guidance examples here: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04040a  That is unusual though where there is a normal commercial mortgage.

2.  Usually the existing mortgage is replaced with another; this is the case here by the look of it, as you refer to remortgaging to clear the existing mortgage debt.

3.  It will be relevant as to how you see yourselves responsible for servicing and paying the new debt of £62,000.  I expect this is 50 / 50 given what you have said?  Or perhaps are you expecting your partner to pay all of this as part of her "buying in" to your property?

4.  Your calculation is supported to some extent by the guidance here: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04040.  Depending on what you say about the overall figures, it might well be the best view that the chargeable consideration she gives for the acquisition of the half share is the sum of:
(a)  The £110,000 your partner pays to discharge part of your debt.
(b)  If your partner is (in a real sense) assuming liability for half of the ongoing debt of £62,000, then a further £31,000.

5.  As a "sense check" one would compare that figure with half of the value of the property.

slonger

my property is worth about £365,000, we plan to just pay the mortgage from the joint account we hold together.  we both add the same amount to the joint account every month to cover mortgage and bills so I would say we are both paying 50/50 on the mortgage 

SDLT_Geek

slonger said:

my property is worth about £365,000, we plan to just pay the mortgage from the joint account we hold together.  we both add the same amount to the joint account every month to cover mortgage and bills so I would say we are both paying 50/50 on the mortgage 

That is helpful.

So if I follow the numbers, you are happy for your partner to have a half share, worth about £182,500, in return for £110,000 + £31,000 = £141,000?

The rest is a genuine gift?  Or is there something else, like that you owe her some money and that will be settled by you transferring the half share to her?

slonger

yes it would be a gift. we bought the new build property a year ago and got a £18,000 discount so essentially only paid £347,000 I couldn't put my partner on at that time as she still had her house to sell,  so the difference is not worth bothering with we have been together for 13 years. 

SDLT_Geek

slonger said:

yes it would be a gift. we bought the new build property a year ago and got a £18,000 discount so essentially only paid £347,000 I couldn't put my partner on at that time as she still had her house to sell,  so the difference is not worth bothering with we have been together for 13 years. 

Is it clear that at the moment you are the sole beneficial owner of the property?  You might be in dangerous territory if she already has a beneficial interest in the property, for example by putting in capital when it was bought. 

I note that you say “we” bought the house a year ago.  That sounds some alarm bells!

GDB2222

I suppose a reasonable question HMRC might ask is whether the interest payments on the existing mortgage come from the joint account or from the OP’s personal account? 

I think the question concerning SDLT Geek is if the OP’s partner had a beneficial interest, then the 5% higher SDLT rate might have been payable when the property was purchased. 

slonger

I use the term “we” as this is our family home which we both chose together. The property was originally intended to be purchased in our joint names, as we both viewed it as our forever home. However, when we applied for the mortgage, lenders were unwilling to approve a third residential mortgage between us. For that reason, we had to proceed with the purchase in my sole name.

I paid the full deposit and stamp duty from my own savings, and since completion, I have paid the mortgage in full from my own account and continue to do so. My partner was unable to contribute financially at the time as she was still paying the mortgage and all associated bills on her own property. As my income was sufficient to cover both, I was happy to do so.

At the time of purchase, we each still owned our previous homes, both with existing mortgages. I paid the higher rate of stamp duty because my own property had not yet been sold. Once that property was sold, I cleared its mortgage and made a lump-sum payment towards the new mortgage. I then reclaimed the additional stamp duty surcharge, as this property replaced my previous main residence.

I have been married and divorced before, during which I unfortunately lost a significant amount of money. For this reason, I want to ensure that everything relating to this property is handled properly and transparently for both of us.

SDLT_Geek

slonger said:

I use the term “we” as this is our family home which we both chose together. The property was originally intended to be purchased in our joint names, as we both viewed it as our forever home. However, when we applied for the mortgage, lenders were unwilling to approve a third residential mortgage between us. For that reason, we had to proceed with the purchase in my sole name.

I paid the full deposit and stamp duty from my own savings, and since completion, I have paid the mortgage in full from my own account and continue to do so. My partner was unable to contribute financially at the time as she was still paying the mortgage and all associated bills on her own property. As my income was sufficient to cover both, I was happy to do so.

At the time of purchase, we each still owned our previous homes, both with existing mortgages. I paid the higher rate of stamp duty because my own property had not yet been sold. Once that property was sold, I cleared its mortgage and made a lump-sum payment towards the new mortgage. I then reclaimed the additional stamp duty surcharge, as this property replaced my previous main residence.

I have been married and divorced before, during which I unfortunately lost a significant amount of money. For this reason, I want to ensure that everything relating to this property is handled properly and transparently for both of us.

That seems all to be in order then.