Help please: SDLT when transferring equity between spouses with mortgage

[NickPrice]

Hi,

A property is jointly owned and unequal shares allocated by trust deed and Form 17. If changing the shares as a gift (no consideration) will SDLT be incurred for the mortgage? If so can the beneficial interest shares be reallocated without changing existing mortgage shares? I haven't been able to find information about this (or rather found conflicting information). Please do help if you know.

[someone]

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

But you need a lawyer to interpret it... Which is why there are differing opinions.

One way of reading it is to say that you don't transfer any liabilities, therefore (1)(b) does not apply and therefore (1B) is irrelevant.

The other way of reading it is to say that (1)(b) might apply, (1B) tells you what the debt assumed is in proportion to the ownership proportions and therefore SDLT is potentially in scope.

IIRC there's some HMRC guidance somewhere that implies that HMRC consider the second to be the correct interpretation - but HMRC aren't very reliable when it comes to their guidance and this might just be how they want to interpret it. Sorry, my googlefu is deserting me and I can't find it.


I'm inclined to go with HMRC otherwise you get some absurd results - if you don't change the mortgage liability at all then no consideration, so no SDLT, but if you change the mortgage liability a tiny bit then (1B) comes in to scope and the deemed consideration is related to the ownership transfer proportion and not the liability transfer.

[someone]

Oh, and if the first interpretation applies then it's trivial to avoid SDLT on any deemed consideration due to a debt by first adding the second owner with 0.000000001% and then immediately that transaction completes, transferring as much as desired to the second owner.

[NickPrice]

Thanks for your explanation. Is there still a lower threshold on BTL property of £40,000? Such that if the mortgage liability (thus consideration) transferred is below £40,000 then SDLT does not come into play?

[someone]

Yes. Still the same 40K limit as in other transactions.