joint owners transfer to single owner - stamp duty

[taxaminute]

Hi guys I just wanted to ask your advice.

Details
I have a BTL property owned 50/50 with my dad , he doesn't want it in his name any more and has agreed to gift it to me. I'm going to move his 50% share in to my name (100%).

Values
Purchase - £136k spent £4k on all fees (stamp solicitors small refurb) to acquire in 2015
Mortgage - £86k (in joint names)
Market value £180k total gain £40k (£20k each) this part i'm ok with

options
1. I can pay off the mortgage (it's on SVR in 1 month) then do the transfer as a gift from him to me

2. Keep the mortgage and do the transfer

note - i currently have my own home so this property is considered additional (5% stamp)

My understanding
As i understand it, if its gifted with a mortgage the consideration is 50% of the mortgage £43k (5% stamp would be £2,150) if there's no mortgage just pure giftthen no stamp duty as no consideration

Any advice much appreciated, would ideally like to do it as tax efficient as possible

Thanks

[bd6759]

Yes. The assumption of a debt is deemed consideration.

[taxaminute]

thank you do you think it makes any difference who pays off the mortgage ? my logic would be assume it was me he would still be entitled to 50% of the asset, so by gifting me his 50% (with no mortgage) it would be the same if he paid it off himself.

[someone]

The problem is that if you pay off his share of the mortgage then that's effectively paying him for his share and so it would still be viewed as consideration.

If he can pay off his own share of the mortgage before the gift then that would appear to be fine and he truly would be gifting you an unencumbered half of a house. (so long as you aren't repaying him)

One thing to look into (I'm not 100% sure on this, the rules have changed a lot over the years) is that I think transfers for less than 40K don't attract the higher rates, so if you can pay off just over 3K of the mortgage each that would leave 80K outstanding, half of which is then under 40K.

You can then pay off the mortgage after the gift is made to you.

[taxaminute]

The problem is that if you pay off his share of the mortgage then that's effectively paying him for his share and so it would still be viewed as consideration.

If he can pay off his own share of the mortgage before the gift then that would appear to be fine and he truly would be gifting you an unencumbered half of a house. (so long as you aren't repaying him)

One thing to look into (I'm not 100% sure on this, the rules have changed a lot over the years) is that I think transfers for less than 40K don't attract the higher rates, so if you can pay off just over 3K of the mortgage each that would leave 80K outstanding, half of which is then under 40K.

You can then pay off the mortgage after the gift is made to you.

Some very good points.

Substance over form
I agree it would look better if coming from his account the problem is I would have to pay him back the money at some point and maybe at least a year or 2 would need to pass to mitigate it.

But then I might as well just put the money in a ISA savings account and get 4% p.a and take the no risk approach and pay the stamp duty ,

I think unless it's a genuine gift any investigation wouldn't stand up to the substance over form arguement