Do we incur additional SDLT if we remortgage?

makkan00 · 26 March 2018 at 10:48AM

Hi all,
Apologies in advance if this has been covered. I have been researching this for one week and could not find the reasonable answer.

I have spoken to HMRC and they said that they do not provide legal advice and they can only guide to 'guidance'.

I have spoken to our previous solicitor and they suggested to contact HMRC, whereas HMRC says to contact solicitors, so I am going in circles.

I will try and explain the situation.

So, the Scenario is:

Property A: Flat with the value of 200000 and joint property b.w me and mrs. This is our residential property. Outstanding mortgage is £140K on this.

Property B: A house with the current value of 350K and only on my name. This is BTL property and the outstanding mortgage is 250K. I am the sole owner of this property. Unfortunately, we bought this property after April 2016 and I had to pay additional 3% SDLT as a landlord.

What we want to do is, make Property B into residential property and Property A into BTL mortgage.

However, in doing so, we cannot get the residential mortgage only on my name for property B due to the outstanding mortgage of £250k and I will have to include the Mrs into the mortgage application for property B.

Now, as I am adding the Mrs to deed and mortgage, do I/we incur additional SDLT considering that I have already paid additional 3% SDLT in 2016?

This is where the confusion is.

Reading HMRC guidelines, and looking at example 2;
https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

It appears that SDLT will be applicable to the outstanding mortgage if it does. And if that is the case, then 250K (outstanding mortgage) divided by two = £125K.

Now, on £125K there should be no SDLT which she should pay, as this will become our residential property and not BTL mortgage. We may incur £3750 (for £125K share of mrs) if this is considered as additional property.

Can someone help to figure out the answer? or who should be the best person to go for legal advice?

Thanks.

PS: Also, please bear in mind that the purpose of this post is to establish the right amount of SDLT if applicable and not to avoid it.

pinklady21 · 26 March 2018 at 11:29AM

Would asking the lender of property A for consent to let help at all? You would then be able to keep the residential mortgage on it, and let it out.

SDLT_Geek · 26 March 2018 at 12:42PM

You refer to your partner as "Mrs". Are the two of you married? If so it sounds as if you are saved from the higher rates of SDLT by changes brought in with effect from 22 November 2017 in the Autumn Budget. One of the changes is to take out of the higher rates of SDLT simple transfers between spouses.

I agree that if she takes a half share in the property the "chargeable consideration" is £125K, so no regular SDLT if the higher rates do not apply, though a return will be needed.

If you are not married then it seems likely that 3% SDLT would be due on the £125K. It would be on less if you transfer her a smaller proportion of the property.

makkan00 · 26 March 2018 at 6:37PM

SDLT_Geek wrote: »

You refer to your partner as "Mrs". Are the two of you married? If so it sounds as if you are saved from the higher rates of SDLT by changes brought in with effect from 22 November 2017 in the Autumn Budget. One of the changes is to take out of the higher rates of SDLT simple transfers between spouses.

I agree that if she takes a half share in the property the "chargeable consideration" is £125K, so no regular SDLT if the higher rates do not apply, though a return will be needed.

If you are not married then it seems likely that 3% SDLT would be due on the £125K. It would be on less if you transfer her a smaller proportion of the property.

Many thanks for your valuable input. We are married.

I did not get this part of your reply 'so no regular SDLT if the higher rates do not apply, though a return will be needed'.

If we are married, no SDLT will be applied?
Am I correct?

When you say a return is needed, you mean 'filling in the form and returning it'?

SDLT_Geek · 26 March 2018 at 8:45PM

To clarify my comment: once you get to the conclusion that the higher rates of SDLT are not due the question is whether SDLT at the regular rates is due. SDLT at regular rates starts over £125k. So with a chargeable consideration of exactly £125k no SDLT is due.

But yes, a land transaction return is needed. Normally a conyeyancer draws this up, the buyer signs it and the conveyancing files it electronically.

makkan00 · 27 March 2018 at 9:00AM

SDLT_Geek wrote: »

To clarify my comment: once you get to the conclusion that the higher rates of SDLT are not due the question is whether SDLT at the regular rates is due. SDLT at regular rates starts over £125k. So with a chargeable consideration of exactly £125k no SDLT is due.

But yes, a land transaction return is needed. Normally a conyeyancer draws this up, the buyer signs it and the conveyancing files it electronically.

Many thanks for your help.

makkan00 · 29 March 2018 at 7:23PM

SDLT_Geek wrote: »

To clarify my comment: once you get to the conclusion that the higher rates of SDLT are not due the question is whether SDLT at the regular rates is due. SDLT at regular rates starts over £125k. So with a chargeable consideration of exactly £125k no SDLT is due.

But yes, a land transaction return is needed. Normally a conyeyancer draws this up, the buyer signs it and the conveyancing files it electronically.

Thanks for your help. Just consulted two different solicitors and conclusion is that higher SDLT will be applicable. As this property will make my Mrs an owner of the 2nd property, therefore SDLT will be applicable at a higher rate.

I hope it will help others.

SDLT_Geek · 30 March 2018 at 6:27AM

I wonder if you referred the other solicitors to the Budget changes of 22 November 2017 which save transfers between spouses? They would not give you the right answer if they did not now of those!

The pdf guidance of November 2016 had not been updated for those budget changes, though HMRC are in the process of updating the guidance to release as pages of their manual.

The 3% surcharge has got so complicated that many solicitors do not understand it!

makkan00 · 3 April 2018 at 8:06AM

Many thanks mate.
I’ve informed them about it and I doubt that they knew it.
Giving them a hint didn’t change their response and their reply was ’yes, additional SDLT is applicable.’

SDLT_Geek · 3 April 2018 at 4:36PM

I would keep at them until they give you the legally correct answer. It is black letter law. Do you want me to give you the references to the statutory provisions to pass on to them?

It really is not rocket science!

makkan00 · 3 April 2018 at 7:34PM

SDLT_Geek wrote: »

I would keep at them until they give you the legally correct answer. It is black letter law. Do you want me to give you the references to the statutory provisions to pass on to them?

It really is not rocket science!

Many thanks for being kind mate. It will be great if you can provide the references so I can pass it on.

Many thanks.

Do we incur additional SDLT if we remortgage?

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