higher rate SDLT for second property

[Nonimous]

Clients own a rental property together

Mr Client is going to transfer most of his share to Mrs Client. As I understand it, although no money is changing hands, SDLT is due because she is deemed to be taking on most of the mortgage from him.

So far so good

However, a colleague has questioned whether, since this is their second property, the additional 3% would be due. I would have thought not as there is no purchase and nobody has acquired a new property. However, any advice would be most welcome.

[maths]

Yes, the 3% charge applies.

There is a "purchase" as Mrs Client is acquiring presumably by way of gift an additional beneficial interest in the property. It is not necessary to acquire a new property.

If only Mr Client held the legal title and thus only he was on the mortgage he could have transferred a beneficial interest to Mrs Client and have avoided the 3% charge.

[Zee2017]

Hi Maths,
I stuck with quite similar situation.

I am sole owner of BTL property(also mortgaged) and tax on rental income is already in 40p rate even before changes gona happen in next 4 yrs time.
MY wife is not working at all and I want to use her tax-free allowance for this rental income. but she is sharing ownership with me on our current residential house also mortgaged.

Now i have 2 options:
1. put her on deed on BTL property but this triggers 3% extra Stamp duty on her mortgaged slice which is a lot. (to tax the rental income half-half b/t us)
2. Declaration of trust to declare her 50% beneficiary ownership. (to tax the rental income half-half b/t us). this cost around £500

MY Questions are:

1. anyway my wife can avoid 3% extra stamp duty as no monies transfered?
2. will option 2 above work? and acceptable to HMRC?
3. what could be best solution in terms of rental tax and also from CGT in case?

many thanks.

[sonic]

If only Mr Client held the legal title and thus only he was on the mortgage he could have transferred a beneficial interest to Mrs Client and have avoided the 3% charge.

Hi maths, please could you kindly elaborate on the steps involved to avoid the 3% SDLT charge? Are you suggesting that the Land Registry title and Mortgage would remain solely in Mr Client's name and the transfer of beneficial interest to Mrs Client would be via a Declaration of Trust and Form 17 to HMRC? Thanks

[maths]

Zee2017

As you are the sole legal and beneficial owner you can execute a declaration of trust under which you transfer a beneficial interest in the property to your wife.

To avoid an SDLT charge requires the transfer to be by way of gift and under the declaration your wife assumes no responsibility for the mortgage.

For CGT, no charge arises as the transfer is an inter-spouse transfer.

Any interest on the borrowing will not be deductible against the rental income.

Sonic

Are you suggesting that the Land Registry title and Mortgage would remain solely in Mr Client's name and the transfer of beneficial interest to Mrs Client would be via a Declaration of Trust and Form 17 to HMRC? Thanks

See response above where legal title in one person's name only.

The original post was where legal title was jointly held.