Stamp Duty on partial transfer of Parents property

[Peeks]

Hello,

I am hoping to find a fair and efficient solution to the following situation, any input most welcome.

Situation
My wife, 2 daughters, my parents-in-law and I live in my parents-in-law’s house.
The house is currently in my p-in-l’s names.
After a long and arduous process we now have planning permission to build an extension (a granny-annexe) for the p-in-l.
The property without the extension is valued at £850K - £900K.
The annexe is estimated to cost £225K - £250K
My p-in-l’s mortgage is currently £451K
They have both recently retired, he is 70, she is 67
We would all like to live in the extended property for the foreseeable, as long as we can come to a suitable financial arrangement.
We would like to minimise Stamp Duty & IHT

An answer(?) and some questions:
I think (hope!) one potential answer is to be Tenants in Common – with something like a 65:35 split, where I have 65% of the property, take on the mortgage and foot the bill for the annexe build.
If all the mortgage was part of this transfer then this would be considered a gift with reservation and SDLT would be payable on the £451K mortgage.
Can my p-in-l ‘transfer’ only part of the debt? e.g. 65% or better still 56% of the debt (so less than the £250K 3% SDLC threshold)
Put another way, can my p-in-l transfer more equity than debt?

I understand that this matter needs professional advice but I would like to have a reasonable idea of what I should be asking for prior to getting legal input for both parties.

Any help most appreciated.

[section 44]

If all the mortgage was part of this transfer

How would they transfer debt?

[pqtaxation]

I think (hope!) one potential answer is to be Tenants in Common – with something like a 65:35 split, where I have 65% of the property, take on the mortgage and foot the bill for the annexe build.

From a financial point of view, PIL have net value of about £450k in the house within their estate (market value £900k less £450k mortgage).

Could you (and your wife) just be added to mortgage and start to make all payments (both principal and interest) thereby building up a beneficial interest in the house whose legal title would remain with PIL as a single property. Are you planning to pay cash to fund extension at say £250k? Would doing that not just increase your beneficial interest.

Under such a scenario is there an immediate need for PIL to gift/sell any of their beneficial interest to you? Obviously they could do so in the future as a part of their IHT/estate planning.

Just a thought ahead of your meeting with a professional specialist.

[Peeks]

Section 44 - the debt would be transferred by our names being put on the mortgage - if they gift half the property, I assume (incorrectly) that half the debt is transferred..?

pqtaxation - yes, we (me+wife) could be added to the mortgage and yes we could pay for the extension in cash. However, I am a little reluctant to do so, as we would have no legal claim on the property...right?

Thanks for the prompt responses

[section 44]

Put another way, can my p-in-l transfer more equity than debt?

Equity (or rather beneficial interest) is what they would be transferring. The debt wouldn't actually transfer as such.

[pqtaxation]

pqtaxation - yes, we (me+wife) could be added to the mortgage and yes we could pay for the extension in cash. However, I am a little reluctant to do so, as we would have no legal claim on the property...right?

Wrong about your having no claim on the house property. You will have a (increasing) beneficial interest and by "legal" claim you mean claim to the beneficial ownership. --- the professional you will be consulting will advise you. In preparation for that consultation you could read up about the difference between beneficial and legal ownerships and how your beneficial interest can be recorded at the Land Registry to protect you.

Your post reads as though there is complete harmony between PiLs and yourselves and so it might make sense for all four of you to go to that initial consultation though thereafter PILs should take advice independently before any agreement is signed. There will be a need to keep full records of all payments made by you and PILs to evidence the increasing proportion of your beneficial interest (and proportionate decrease in that of PIL).

As an aside, if you did not join PILs in the house, how were PIL’s intending to pay the ca. £450k mortgage in their retirement?

[Peeks]

Thank you, I will read up on beneficial interest and suggest all 4 of us go to the initial consultation.

If we can't make this work they will sell the property and downsize.

[section 44]

Wrong about your having no claim on the house property. You will have a (increasing) beneficial interest

A bit cavalier. Absent an explicit declaration of trust there would be a rebuttable presumption that the beneficial interest follows legal ownership. Demonstrating beneficial interest on basis of some form of constructive/resultant trust is never going to be easy.

[Peeks]

So we could create an explicit declaration of trust that stated the property was split (e.g. 65:35)? and no SDLT would be payable?

Would this protect both parties interests in the event of a sale? And would mortgage providers be willing to lend based on my salary alone if we 'only' have this DoT in place? (apologies if these points are a bit off topic)

[section 44]

So we could create an explicit declaration of trust that stated the property was split (e.g. 65:35)?

Yes.

and no SDLT would be payable?

Provided that any chargeable consideration given by you does not exceed £125k.

If, for example, the PIL made a gift to you of 35% of the beneficial interest in their property then you would not pay any stamp duty.

'only' have this DoT in place?

I'm not sure why you make the "only" reference. Legal ownership has little value, beneficial interest is the valuable bit.