Transfer of Equity SDLT for Unequal Shares?

[SNash]

Please could someone advise me with regards to SDLT for the following scenario:

I am married and am the sole owner of the current matrimonial home, my husband having moved in with me when we met.

We need to relocate for my health and my husband’s work. Neither of us are able to get a mortgage currently because 1) my husband has had 3 redundancies since we married in June 2009 and has only just gone back into work again so is on a probationary period 2) I have an existing mortgage on my home and am currently unable to work due to my health.

We have found the ideal home for £230,000 and are proceeding to purchase it in my husband’s sole name using £10k of his savings, £30k of mine and a loan @ 2% from my mother for £190k with a maximum 12 month term. As my husband is a first time buyer he will qualify for SDLT exemption – a very welcome relief in our rather stretched financial situation!

Once I sell my home (it is on the market now) and release the equity in it, I shall reduce the amount of money borrowed from my mother by £70k, making my contribution to the purchase of the new home a total of £100k. My husband and I will then take out a joint mortgage on the new home within 12 months for the balance of £120k to pay back my mother entirely and hold the home as Tenants in Common.

This will therefore require a transfer of equity, but because of the difference in down payments, ie: £10k from my husband, and £100k from myself on a £230k property with a mortgage of £120k, we wish to have this 30% 70% split declared on the deeds in case of a parting of ways in the future.

So here I come to my question: When doing a transfer of equity, will I become liable to pay any stamp duty?

50% of the value of the property is £115k, and therefore falls under the threshold for SDLT. However, if we are declaring a 30% 70% holding, this puts my share at £161k. No money will be changing hands for this transfer of equity, but I don’t know if that has any relevance or not.

I have taken advice on this from a variety of conveyancers and my legal helpline and I have been given so many conflicting answers, I have turned here to see if I can get a definitive understanding of where we stand. I was told by one solicitor that I would be liable for SDLT on the whole £230k! I am really so confused not to mention worried. If this is the case, would we be better off buying the house in joint names now, paying the SDLT and saving ourselves the trouble of Transfer of Equity further down the line? Can I do that whilst still owning my current home?

Any guidance would be greatly appreciated. Thank you.

[section 44]

As my husband is a first time buyer he will qualify for SDLT exemption – a very welcome relief in our rather stretched financial situation!

No he wont.

Based on what you have said, in equity, the home would be jointly owned by both of you and you would be joint purchasers for SDLT purposes (it is irrelvant that the legal title may be held solely in his name). As you are not a first time buyer, the two of you as joint purchasers do not qualify for the first time buyer exemption.

[SNash]

Well that's the first time we've been told that! Every Solicitor we have spoken to about this has confirmed that as the home is being purchased in my husband's sole name, and he is the only one on the conveyancing documentation, and we are not entering any joint interest on the Title Deeds at the stage of purchase - then he most definately qualifies as a first time buyer.

Could you please explain how the HM Revenue and Customs will be any the wiser about this and why we have been told by the Conveyancer who is processing the sale right now that he does qualify? I am now extremely concerned as, upon their advice, he has signed SDLT Relief Declaration and everything is being processed on that basis.

We had been advised that doing a Transfer or Equity and re-mortage 12 months down the line would be perfectly acceptable and that as a 50% share fell below the £125k limit, SDLT was not an issue at this stage also. It was only because of the 30/70 split at the point of remortgage that I have started to become concerned about SDLT on my proportion at the time of Transfer of Equity and hence felt I should raise the query here.

I am sorry if I am misunderstanding all this, but we have been told very clearly by a number of Conveyancing Solicitors that my husband is most definately exempt as a sole purchaser, regardless of how he is buying, ie: cash or mortgage.

[section 44]

Could you please explain how the HM Revenue and Customs will be any the wiser

Irrelevant, it is a self-assessed tax.

and why we have been told by the Conveyancer who is processing the sale right now that he does qualify?

I have never met this conveyancer, let alone know him or her. Ignorance, or a disregard, of the law might be an explanation.

[SNash]

Irrelevant, it is a self-assessed tax

I'm sorry , I really don't understand what you mean by that! Could you please explain a little further.

I have never met this conveyancer, let alone know him or her. Ignorance, or a disregard, of the law might be an explanation.

On the SDLT Relief Declaration Form, provided by our Solicitors, there are 8 questions and answers regarding how somone qualifies. My husband has applied under No.8 that reads:

"Q: My partner and I wish to buy a property together but s/he has previously owned a property. I could afford to buy the property and have the mortage in my sole name. Would we be able to claim the relief if we both live in it together and have a separate agreement between us to cover sharing the mortgage payements, etc?
A: Yes. As long as you buy in the name of the partner who has not owned a property before you can claim the relief. We can advise you on how you can arrange a separate agreement covering sharing mortgage and other costs. However we advise you to discuss this with your financial advisor before instructing us to do so."

It is under this basis we are proceeding to purchase in my husband's sole name. The Solicitors we are using are not some small, internet only company - they are a large, well established high street concern! Are you really suggesting that we have been advised wrongly? I am extremely concerned what I am hearing here!

[section 44]

I'm sorry , I really don't understand what you mean by that! Could you please explain a little further.

You and your husband have an obligation to pay the SDLT that is due. If you deliberately do not do so then that is a cheat on the Revenue/theft. Theft is wrong (legally if not morally), I trust that I do not need me to explain why that is the case. The likelihood of you getting caught, which is effectively what you asked, is irrelevant.

high street concern

When it comes to tax law I wouldn't regard a high street firm of solicitors (large or otherwise) as experts.

As long as you buy in the name of the partner who has not owned a property before you can claim the relief. We can advise you on how you can arrange a separate agreement covering sharing mortgage and other costs.

This incorrectly focuses too much on legal onwership. SDLT, like most taxes, looks towards beneficial ownership. If you would have an interest in the proceeds of sale of of the property then you would be a beneficial owner and therefore a joint purchaser for SDLT purposes.

We can advise you on how you can arrange a separate agreement covering sharing mortgage

This would mean that you have an interest in the proceeds of sale and therefore a beneficial interest in the property.

[SNash]

OK. I see where you are coming from now. Thank you for your time.

[PropertyTaxAdviser]

hi, I have been a partner in a city firm specialising in real estate taxes, particularly in SDLT and before that stamp taxes for 11 years and have regular contact with HMRC stamp taxes policy team and their lawyers throughout my career.

Initial Purchase and transfer of equity,

When you give your husband 10K, and as his wife, their would be a presumption in equity law that you have an interest in the property. Of course you can make an outright gift and as this is a presumption that can be rebutted by deed. I could draft that but my charge out rates would be too high I expect to be economical for you and I expect that any decent private client lawyer could do that for you. If that were done and on simple terms your husband should benefit from FTB relief.

What actually troubles me is the application of an extremely poorly drafted and complex anti avoidance provision contained in section 75A of the Finance Act 2003. To try and simplify this it seeks to apply SDLT on certain combined steps taken which taken together reduce the amount of SDLT HMRC can collect. These steps do have to be connected in some way but the steps don't have to be land transactions or acquistions they can also apply to understandings, side agreements etc etc. I think, because what you are doing is pretty much preordained you could be caught under this section if HMRC took the view that the steps when looked at together deprived them of the SDLT they would have received if your husband hadn't has the benefited from FTB relief.

Given that by doing what you are doing you are only saving £500 and quite frankly exposing yourself to tax under section 75A and later the SDLT on the transfer of equity ( double tax) I wouldn't advise you to do what you are planning.

Go on title, legally and benefically, together at the outset and pay the SDLT on the purchase price. Simply remortgaging later won't give you an additional charge.

If you do go down your route, I wouldn't do it without a full disclosure to HMRC about the section 75A position and just doing that and dealing with HMRC's enquiries afterwards would cost you more than the saving.

Same outcome answer as section44 but for different reasons!