Is Stamp Duty due?

[ben_power]

Can somebody help with the following situation?

Facts:
Purchased a property in 2019 for £375,000 with a 15% deposit so it has a mortgage of c.£310k remaining.
Client 1 was a first time buyer and client 2 was a homeowner.
In order to avoid the surcharge of 3% stamp duty (as a second home owner) and to benefit from the FTB stamp duty relief they purchased the property on a 'joint bower, sole proprietor' basis.

Now the stamp duty thresholds have changed transferring ownership from sole proprietor to tenants in common may be good opportunity for them. My understanding is that stamp duty is based on the mortgage remaining but given it is already in joint names would the charge still apply? AND, if equity of less than 50% was transferred to client 2 would that make a difference?

Lastly, should they decide to get married and transfer equity at that point would that avoid it (on the assumption that is was considered a gift).

Interesting scenario and whilst I'm a financial adviser it's not my area so thought I'd ask for guidance here. Thanks in advance.

[bd6759]

You are generally right. The consideration would ordinarily be the assumption of the debt, but since they are both already liable for the debt, there is no assumption of debt therefore no consideration.

It seems to me that your clients evaded SDLT when they acquired the property by pretending that partner 2 did not have any interest in it. The litmus test is what would happen if they spit up. Would partner 1 be able to keep the property without recompensing partner 2?

[someone]

I'm not sure that this is right. I thought the law had been clarified (not changed) to make it clear that where a jointly owned property is mortgaged, for the purposes of SDLT the liability is assumed to be the proportion of the debt equal to the proportion of the property owned (with additional clarification that joint tenants are equal share owners)

It's all in Schedule 4 of FA2003

http://www.legislation.gov.uk/ukpga/2003/14/schedule/4

[F9(1A)Where—
(a)debt is secured on the subject-matter of a land transaction immediately before and immediately after the transaction, and
(b)the rights or liabilities in relation to that debt of any party to the transaction are changed as a result of or in connection with the transaction,

then for the purposes of this paragraph there is an assumption of that debt by the purchaser, and that assumption of debt constitutes chargeable consideration for the transaction.

(1B)Where in a case in which sub-paragraph (1)(b) applies—

(a)the debt assumed is or includes debt secured on the property forming the subject-matter of the transaction, and
(b)immediately before the transaction there were two or more persons each holding an undivided share of that property, or there are two or more such persons immediately afterwards,

the amount of secured debt assumed shall be determined as if the amount of that debt owed by each of those persons at a given time were the proportion of it corresponding to his undivided share of the property at that time.

=============

I'll willingly admit that I don't understand legalese and at least one reasonable interpretation is that (1)(b) doesn't apply. I believe that (1B) clarifies where (1)(b) applies (e.g. change in ownership proportions) rather than (1)(b) disallowing the application of (1B) but I'm neither a lawyer nor an accountant and my belief is worth what you paid for it

[someone]

N.B. At least part of the reason for the clarification was that some solicitors were claiming that adding a joint tenant to the mortgage was an assumption of 100% of the debt by the second person and therefore SDLT was due on the entire mortgage value.

[ben_power]

Thanks for the replies.

The clients are confident that no 'tax evasion' took place, they took advice from a mortgage broker, the conveyancer and separate solicitor.

I can't for the life of me get my head around the second post though, why can't legal documents be written in English. Hah. Can you translate it for me?

[someone]

This is supposed to explain it...

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04040

[bd6759]

It makes it quite clear that there has to be an assumption of a debt.
In this case there has been no assumption because they are both responsible for the debt before and after the change.

[someone]

Doesn't this say exactly the opposite though?


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.


So when it was put into joint names with a 100%/0% split, for the purposes of calculating liability for stamp duty it was 100% to one and 0% to the other.

Now it's changing the liabilities for the debt (for the purposes of stamp duty) are changing.

[bd6759]

No. Para 8 of sch 4 does not say that. You are looking at it the wrong way round.

8(1B) only applies where 1(b) applies. It says that right at the start.

1(b) says that where there has been an assumption of debt by the purchaser, the amount of debt assumed shall be the consideration.

In this case partner 2 has not assumed a debt. Partner 2 is already liable for the debt. Nothing has changed. Partner 1 has not been released from any obligation.
You cannot look to para 8(1B) to deem a percentage because 8(1B) does not apply.

Despite the advice from a solicitor, it seems clear that partner 2 has always had an interest and SDLT was underpaid on the original acquisition. HMRC might pick up on it when the LR entry is changed.

[someone]

My quote is from:

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04040

So I think the way HMRC interpret this is that 1B is how to calculate liabilities (and so if they change) - and therefore if 1(b) applies - rather than you go to 1B if (and only if) 1(b) is true.


Your interpretation appears to be a trivial way to avoid all SDLT between husband and wife:

1. Put spouse onto mortgage but with a 0% beneficial interest (as the OP did)

we agree that liabilities have changed.

So we go to 1B to calculate consideration. That says that for consideration purposes liabilities are assumed in the proportion that is owned. But as 0% is owned by the receiving spouse there is no consideration and therefore no SDLT due.


2. Now spouse is on mortgage transfer a beneficial interest to the spouse.

You are saying that liabilities have not changed and therefore we don't need to look at 1B - no SDLT is due.