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Where Taxpayers and Advisers Meet

Gift between spouse

ben_power
Posts:52
Joined:Tue Feb 27, 2018 8:34 pm
Gift between spouse

Postby ben_power » Sat Jan 23, 2021 12:00 pm

Hi all,

My partner and I each own properties. Our main residence was bought in my sole name buy she went on the mortgage as I couldn't quite borrow all I needed. (Joint borrower, sole proprietor).

If we got married and I then changed the ownership from my sole name to 'ten in com' would this 'gift' be free from stamp duty?

someone
Posts:450
Joined:Mon Feb 13, 2017 10:09 am

Re: Gift between spouse

Postby someone » Sat Jan 23, 2021 5:45 pm

My reading is that potentially yes. For SDLT purposes she will take on liability for the share of the mortgage corresponding to her share of ownership (not withstanding that in fact she is jointly and severally liable and what proportion she beneficially owns is irrelevant to that)

I'm not sure that everybody here agrees (and I'm not an accountant...)

Unfortunately, the two examples that HMRC give don't cover the position where there's a change in beneficial ownership but no change in liability under the mortgage and the legislation is ambiguous as it talks about a change in liability. It depends on whether you read that "change in liability" as "change in liability in fact" or "change in liability as deemed by SDLT calculations"

SDLT Geek
Posts:223
Joined:Sun Apr 30, 2017 5:45 pm

Re: Gift between spouse

Postby SDLT Geek » Sat Jan 23, 2021 8:32 pm

There might be “chargeable consideration” because of the debt. The 3% surcharge is “switched off” for spouses living together, so there would only be SDLT due if the chargeable consideration is over £500,000) or £125,000 after the holiday.

bd6759
Posts:3543
Joined:Sat Feb 01, 2014 3:26 pm

Re: Gift between spouse

Postby bd6759 » Sun Jan 24, 2021 12:58 pm

For once I disagree with Geek.

For there to be a charge the wife would need to assume a debt. She is currently responsible for the loan therefore she is not assuming any debt.

I don’t think there is any SDLT in that scenario.

someone
Posts:450
Joined:Mon Feb 13, 2017 10:09 am

Re: Gift between spouse

Postby someone » Mon Jan 25, 2021 10:09 am

:-)

As I said, the law is ambiguous.

The relevant bit is:
https://www.legislation.gov.uk/ukpga/2003/14/schedule/4/paragraph/8

And the ambiguity comes on whether you consider 1A (b) excludes the application of 1B or whether 1B brings 1A (b) into scope by deeming the liability.

This is a legal question, not a tax question. If the interpretation of the legislation was clear then I don't think there would be any dispute on the liability.

(And I suspect if you took this to an equivalent legal forum you'd get as much disagreement between lawyers as you get between accountants here :-) )

someone
Posts:450
Joined:Mon Feb 13, 2017 10:09 am

Re: Gift between spouse

Postby someone » Mon Jan 25, 2021 10:21 am

Oh, and FWIW, the reason I don't think bd6759 is correct is nothing to do with my ability to comprenend what lawyers mean (or my mediocre at best understanding of tax law) but that if he was correct then it would make it trivial to avoid SDLT on transfers:

1. Put property into joint names TiC with a 0% (or small) beneficial interest to the new owner. No SDLT thanks to 1B
2. Change the proportions of ownership. As the mortgage is joint and several there would be no change in liability in law so 1A (b) would exclude application of 1B

I'm assuming that the lawyers when they drafted the law didn't miss this avoidance trick and didn't deliberately intend it so I agree with SDLT Geek that SDLT is potentially in scope when beneficial interests change on a mortgaged property even if there is no other consideration.

In extremis it could even be used to sell a property with zero SDLT - first owner mortgages it to 100% of value (OK, you'll struggle to get a 100% mortgage today), then the new owner takes on joint liability for the mortgage but no beneficial interest, then the new owner takes on 100% interest but the old owner stays on the mortgage, finally the old owner is removed from the mortgage. (OK, this will probably fall foul of anti-avoidance legislation and is high risk for both parties as you will have a large liability with no asset during the transactions but nominally the SDLT legislation would allow it)

ben_power
Posts:52
Joined:Tue Feb 27, 2018 8:34 pm

Re: Gift between spouse

Postby ben_power » Mon Jan 25, 2021 9:24 pm

Thanks for the replies.

I think you're right, this does appear to be a legal debate rather than a tax question which is what worries me.

I actually raised your point about why this 'loophole' is not more widely used as I too felt it was open to abuse. Our intension was innocent but I did wonder why others had not exploited it.

It has been suggested elsewhere that I have two options. 1). Speak to HMRC in advance and ask them to calculate it or 2). complete it and retrospectively notify them of my calculation. I believe they then have a certain timeframe to challenge our payment. Is this 9 months?

Thoughts welcome and thanks again for your input.

bd6759
Posts:3543
Joined:Sat Feb 01, 2014 3:26 pm

Re: Gift between spouse

Postby bd6759 » Tue Jan 26, 2021 10:28 pm

Since Tax is a statutory matter, all tax questions are legal questions.

Deemed consideration comes into play when there is an assumption or a release of a debt. In your what-if scenarios there is both.

In the OP, the loan had always been in existence, so there is neither an assumption nor a release.


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