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SDLT: Transfers Subject To A Debt – Change In Stamp Taxes’ Practice? |
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Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, highlights a potential Stamp Duty Land Tax pitfall on the transfer of property interests subject to a mortgage.ContextThe SDLT legislation carries an express rule which was in practice applied by the Stamp Office under Stamp Duty. The scenario envisaged is ownership of the matrimonial home by say husband subject to a secured mortgage. He transfers the house into joint names with his wife, whether as joint tenants or as tenants in common in prescribed shares. The question is, for purposes of ascertaining the consideration, what part of the debt is taken into account? There are various permutations of that basic circumstance.What the SDLT Manual saysSDLTM 04040 states:‘Because a transferee normally accepts joint and several liability for any existing debt, concerns had been expressed that transferees might be chargeable on the full amount of the debt even if they acquired only a part share of the property. FA03/SCH4/PARA8(1B) ensures that in determining the amount of debt assumed, each person’s liability for the debt is taken to be a proportion of the debt corresponding to the share that they own in the property subject to the debt’. The case in point: ExampleMarried couple Mr and Mrs X live in Blackacre. Blackacre is owned 100% by Mr X and is worth £900,000. There is a mortgage of £400,000. Mr and Mrs X want to increase the mortgage by an additional £150,000 and to put Mrs X on the legal title. They decide that they will own as tenants in common in unequal shares, with Mrs X owning some 17% of the property.Applying the statutory ruleThe chargeable consideration rather depends on whether the transfer, obviously of both beneficial and legal title, occurs before or after the increase in mortgage (most likely, however, before). Applying the new rule in para 8(1B), the chargeable consideration is 17% of £400,000, viz. £68,000, within the threshold of £120,000 for residential property, although of course an SDLT1 will have to be submitted within 30 days after the effective date.In terms of computing the liability, note that while the transfer of property subject to debt is a chargeable consideration with the amount of the debt assumed constituting the consideration, a mere increase in the borrowing secured on a property is not the transfer of a chargeable interest. Stamp Taxes viewIt appears from a conversation with a property lawyer that Stamp Taxes’ approach to this sort of situation has changed over the last six months. Having previously applied the practice mentioned above, they now it appears ignore the legal arrangements as between the co-owners, in favour rather of the practice of the lenders (who naturally require joint and several liability of the borrowers). On this basis SDLT is charged on the basis that the transferee has assumed one half of the debt. Indeed in this example the solicitors were told that the SDLT liability was an [amazing] £10,500, the consideration being half the existing mortgage plus the entire additional borrowing: £350,000 at 3% = £10,500.CommentThis can’t be right, but subscribers are forewarned! Meanwhile I am attempting to pick up the point with Technical Division at HMRC Stamp Taxes.[An alternative could perhaps be for the husband to take the whole of the additional borrowing as beneficial owner but with his wife guaranteeing the loan, assuming that the lender is agreeable. But under general principles it may be thought a good idea to have both husband and wife as express legal and beneficial owners, even if not in equal shares.] (My comment on a situation originally put to me by Claire Cross of Maitland & Co) More InformationThe above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.About the AuthorMatthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.THE FIFTH ESTATE PLANNING CONFERENCE: CURRENT ISSUES 2006 East Tuesday 13 June Cambridge Belfry Hotel Midlands Tuesday 20 June Sketchley Grange Burbage, Hinckley South Tuesday 27 June Norton Manor Hotel, Sutton Scotney, nr Winchester West Thursday 14 September Bailbrook House, Bath North Tuesday 3 October Weetwood Hall, Leeds London Tuesday 31 October The Law Society’s Hall For further details, brochures and booking forms please contact Matthew Hutton: email – This e-mail address is being protected from spambots. You need JavaScript enabled to view it or telephone – 01508 528388 (Ref: TaxationWeb). |
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About The Author  Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence. Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
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Article Added Saturday, 13 May 2006 |
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