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Where Taxpayers and Advisers Meet

Higher Stamp Duty Question

ZachJones
Posts:3
Joined:Sat May 08, 2021 11:41 pm
Higher Stamp Duty Question

Postby ZachJones » Sat May 08, 2021 11:55 pm

Hi all, thanks in advance for your time.

I am currently buying a property to live in with my fiance but we are subjected to Higher tax 3% stamp duty because I have a joint BTL flat property with my brother.

This BTL property was an investment between 5 family members 6 years ago but only has mine and my brothers name on the property deed and mortgage. We have a Declaration of Trust where if we were to sell the property, then everyone will get their contribution back (maybe some extra profit) based on how much they've put in before and after the purchase of the property.

My main question is, if I were to do a Transfer of Equity and remove my name off the property deed & mortgage with my brother being the sole owner, would this be enough to qualify me and my fiance on not paying the higher stamp duty? Even though I still have a Declaration of Trust on that property where I have an unequal share of that property?

Based on the Declaration of Trust, I have contributed £35k which is my 'share', do I even need to bother with the transfer of equity as my share is worth less than £40k? When we calculate each family member share, we base it on this excel sheet we keep updated so I don't know if the tax man will like it or not.

Kind regards,
Zach.

maths
Posts:8281
Joined:Wed Aug 06, 2008 3:25 pm

Re: Higher Stamp Duty Question

Postby maths » Wed May 12, 2021 6:30 pm

I'm a bit confused.

You are on the legal title and the mortgage. The legal owners, ie you and your brother, appear to have executed a declaration of trust which confirms how the legal title is held ie the trust sets out the % of the beneficial interests of all relevant persons.

In order for you to purchase with your fiancee and avoid the 3% surcharge on the purchase you would need to possess no beneficial interest in the existing property or possess such an interest whose market value at the date of purchase with fiancee was below £40,000

ZachJones2
Posts:1
Joined:Wed May 12, 2021 11:21 pm

Re: Higher Stamp Duty Question

Postby ZachJones2 » Wed May 12, 2021 11:33 pm

I'm a bit confused.

You are on the legal title and the mortgage. The legal owners, ie you and your brother, appear to have executed a declaration of trust which confirms how the legal title is held ie the trust sets out the % of the beneficial interests of all relevant persons.

In order for you to purchase with your fiancee and avoid the 3% surcharge on the purchase you would need to possess no beneficial interest in the existing property or possess such an interest whose market value at the date of purchase with fiancee was below £40,000

Thank you for the reply.

So if I were to do the transfer of equity, would it be useless to reduce the 3% surcharge as I still have a beneficial interest with the Declaration of Trust? Or does the transfer equity supercedes the Declaration of Trust anyways and I lose my entire share?

At the beginning when we bought the property for £380,000, I only contributed £3000 during the process so my share was low at the start. But over the next 5 years I contributed a total of £32k, if we were to sell it now then I would probably get more than £40k+ due to asset appreciation. With this information, where do I land on this 3% surcharge? My share only mattered when we purchased it as it was less than £40k? Or my share matters now if we were to sell it now as I get back more than £40k+?

someone
Posts:521
Joined:Mon Feb 13, 2017 10:09 am

Re: Higher Stamp Duty Question

Postby someone » Thu May 13, 2021 7:37 am

The value of your holding on the day that you exchange is what matters. 39999.95 and you don't have to pay the 3%, 40000.05 and you do.

I think you're confused about "Declaration of Trust" and "Transfer of Equity"

A DoT will set out what proportion of the property you own beneficially.
A Transfer of Equity will change your beneficial interest (and will presumably result in a new DoT although I don't know if that is required in law)

Example to keep the numbers simple - property worth 100K - you own 45%, big owner owns the rest.
So your share is currently worth 45K and you have to pay the 3% surcharge.

You transfer 10% to me :-) so now your share is 35%. The solicitors will create a new DoT to replace the old one:
55% big owner
35% you
10% someone

and now your share is worth 35K and you don't have to pay the higher rate SDLT - and it's only cost you 10K of your property.

transfer of equity and DoT is bread and butter to conveyancing solicitors. But don't expect them to understand the nuances of SDLT and the 3% charge unless you go to a larger firm that also includes accountants. And, while it's probably not relevant based on your comments below, a transfer of equity can trigger CGT which then has to be declared and paid within 30 days.

ZachJones
Posts:3
Joined:Sat May 08, 2021 11:41 pm

Re: Higher Stamp Duty Question

Postby ZachJones » Fri May 14, 2021 3:24 am

The value of your holding on the day that you exchange is what matters. 39999.95 and you don't have to pay the 3%, 40000.05 and you do.

Thanks for the response, just to clarify, this is when we bought the property where we take into account the value of my holding? So we look at £380k (property price when we bought it) and my £3k contribution share at the start, and ignore what both could be worth today? Or we look at £380k property price, and my current share of £32k when deciding whether I need to pay Higher Rate Stamp Duty?

transfer of equity and DoT is bread and butter to conveyancing solicitors. But don't expect them to understand the nuances of SDLT and the 3% charge unless you go to a larger firm that also includes accountants. And, while it's probably not relevant based on your comments below, a transfer of equity can trigger CGT which then has to be declared and paid within 30 days.

I will be forwarding my DoT to my solicitor that we did 5 years ago, but that document doesn't outright says what percentage of shares we have but to look at this Excel sheet we keep updated every month (where our shares is based on contribution). I will await a reply from the solicitor, but do you believe a new DoT document that specifically says what percentage of shares we have now is better to send to the solicitor to avoid any ambiguity?

I am considering taking out £10k off my share against the BTL property via the joint account to help borrow less for my mortgage which would reduce my share based on the Excel sheet. I assume this can be done without any paperwork (like Transfer of Equity) and won't trigger any CGT?

someone
Posts:521
Joined:Mon Feb 13, 2017 10:09 am

Re: Higher Stamp Duty Question

Postby someone » Fri May 14, 2021 6:57 am

The value of your holding on the day that you exchange is what matters. 39999.95 and you don't have to pay the 3%, 40000.05 and you do.
Sorry, that was ambiguous.

It's the value of your holding of your *existing* property on the day you exchange on your *second* property. In simple terms it's the value today, not when you bought.


And I don't see how an excel spreadsheet can avoid CGT. I don't really understand quite what your setup is but if a beneficial interest changes hands then there is potential for both CGT and SDLT.

I think you're saying this: (example)

Two people bought house for 48K and put in 10K and 40K (extra 2K is for legal fees) so your spreadsheet says 20% person 1 and 80% person 2.

Person 1 then pays 5K for a new boiler. spreadsheet now says 15K and 40K - so now person 1 owns 27.27% and person 2 now owns 72.73%.

That seems to me as though person 1 has bought 7.27% from person 2 for 5K. I think this will count as a market value transaction so person 2 is potentially liable for disposal of a 7.27% share to cgt. I guess SDLT would be out of scope as the consideration is small.

If the actual proportions changing hands are small enough then in reality then I guess it will fall inside the CGT allowance provided there are no other gains to worry elsewhere.

I'm pretty sure the law requires transfers of beneficial interest to be in writing. I'm not sure your excel spreadsheet would qualify - it would be the documentation that backs up the numbers in the spreadsheet that would matter. If HMRC decide to query your valuation of your share they're going to want to see all of that. On the one hand that might help you as, in law, you might still only own a beneficial interest in around 1% (3/380) but if you now think you should own 35/380 then you've lost out on all that money you've put in. On the plus side, if you sort it out after you exchange on your new property then it feels as though you'll avoid the 3% charge, but you'll have to worry about SDLT and CGT on getting your other 32% transferred.

Unfortunately, I think your position crosses a line where you need expert legal *and* accountancy advice to untangle. I can provide neither.

ZachJones
Posts:3
Joined:Sat May 08, 2021 11:41 pm

Re: Higher Stamp Duty Question

Postby ZachJones » Mon May 17, 2021 9:37 pm

Yes the setup is basically similar to what you said, sometimes we may decide to overpay the mortgage in different amount and we wanted to keep things fair by keeping a note on the excel sheet as to who contributed more than the deposit. Hence shares may fluctuate slightly based on contribution.

Based on my solicitors response so far, it seems like we may need to draft a new DoT that says exactly what each of our share is by percentage.

Thanks for the response.

Taxninja
Posts:3
Joined:Thu May 27, 2021 4:15 pm

Re: Higher Stamp Duty Question

Postby Taxninja » Thu May 27, 2021 4:18 pm

Yes if you do that you will have disposed of your interest. So no 3%


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