SDLT and inter-spouse transfers; Different taxes have different rules, and it is important to consider the full picture. Looking at one tax in isolation may lead to an unexpected bill.
Most people are aware of the capital gains tax rule which allows spouses and civil partners to transfer assets or a share in an asset between them at a value which gives rise to neither a gain nor a loss, the transferee simply takes on the transferor’s base cost. This can be handy when putting a house or a flat into joint names.
However, while there may be no capital gains tax to pay on the transfer, it may give rise to a stamp duty land tax (SDLT) liability.
Nature of SDLT
SDLT is payable on the purchase of land and buildings in England and Northern Ireland. It is charged on the ‘chargeable consideration’. This will usually be the amount that is paid for a property. It may also include fees paid to secure the property, for example, where a property is bought at auction, any auction fee payable by the buyer.
However, the definition of chargeable consideration also includes any debt or obligation taken on by the purchaser, even if little or no cash changes hands. This includes taking over a share of a mortgage and it is this which often catches couples out.
If there is no chargeable consideration, there is no SDLT to pay. This would be the case on a gift between individuals of a property where there is no associated transfer of debt.
The debt trap
Spouses and civil partners can be caught out when they put a property into joint names and also put the mortgage into joint names. This can unwittingly trigger an SDLT charge, even though no cash changes hands.
Example
Lucy and Ben live together in a house owned by Lucy. Following their marriage, Lucy transfers a 50% share of the house to Ben. Lucy paid £500,000 for the house on which she has a £400,000 mortgage. They also put the mortgage into joint names. At the date of the transfer, the house is worth £600,000.
There is no capital gains tax to pay as the no gain/no loss rules apply.
However, for SDLT purposes, there is chargeable consideration of £200,000 (the share of the mortgage assumed by Ben). He must pay SDLT of £1,500 ((£125,000 @ 0%) + (£75,000 @ 2%)).
Separation and divorce
Where property is transferred between spouses and civil partners on separation where this is likely to prove permanent or on divorce or the dissolution of a civil partnership, there is no SDLT to pay even where one partner takes over the other’s share of a mortgage.
Avoiding the trap
Aside from the rather drastic step of separating or divorcing, couples can avoid an unwanted SDLT charge where circumstances allow by either clearing the mortgage or reducing the share of the debt taken over to below £125,000 where the couple only have one residential property and to below £40,000 where the property is a second or subsequent property.
