Stamp Duty query

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    Stamp Duty query

    I originally posted in the finance section - but I now think this is more of a tax question. Some questions arose during a discussion yesterday and I just wondered if anyone has any thoughts/ answers on the below?

    1stly) If someone (or company) buys a debt that has a legal charge over a property do they pay stamp duty?
    In my mind, if you buy a debt you are not transacting on the property so I would think no duty is payable?? Yes/No??

    2ndly) If the property is subsequently sold to someone - excluding the debt - for a price which equals the difference between the debt level and the market sale value - on what price is duty paid?
    For example: the property is potentially worth (dependent on market) say £3.5m / the debt is say £2m / the title deeds are sold to someone else for £1.5m. If the debt is retained separately, by the person/ company who bought the debt, is duty paid just on the property transaction of £1.5m?

    3rdly) what happens when the new property owner later agrees with the debt holder to clear the 'debt' - which is no longer charged against the property, rather just a debt? As it is just a 'debt' and not attached to the property would the new owner pay duty on the £2m (+ interest)?

    Anyone have any answers to these questions? Thanks

    #2
    Buying a debt wouldn't incur stamp duty (unless the debt was some kind of tradable share). It's an interest in land, but it's unlikely to attract Land Tax as a secondary charge - but if the interest were sufficient to make it a controlling interest it might. If the debt was 99% of the property value, by buying the debt you are essentially buying the property.

    Land Tax is based on the market value of the property if it is sold at an undervalue. So a property "worth" £3m that's what the SDLT would be based on, regardless of the purchase price (otherwise mortgaged properties would never pay full SDLT.

    So there would be no further SDLT to pay when the debt is discharged or disconnected from the property.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      thanks for the reply.

      Still a bit confused. If the debt is not a mortgage; rather a loan charged against a property does that make a difference?

      In such a poor market it is difficult to ascertain what is the "worth".

      If a transaction went through at say £1.5m and then a company, associated with the new property owner, purchased the loan - would hmrc bunch the 2 transactions together for stamp duty purposes?
      I have read that transactions can't be split, such as husband buys house, wife buys garden - hmrc treats the couple as 'one' for stamp duty. But if title deeds are bought by a person and the debt later bought by a company in which the same owner has an interest - would that be viewed as 'one' for stamp duty?

      Comment


        #4
        Transactions are "connected" based on the facts of the transactions.

        You don't buy a property and its debt separately.

        In the example you give, the property is worth £3.5m, anyone buying it at £1.5m would be taxed as though the transaction was £3.5m - unless they could show an actual reason for the undervalue.
        The debt is a separate thing that doesn't affect the property value - it might affect how much cash changed hands, but that's not relevant for SDLT.

        If you try and split the transaction into separate components, you're essentially just buying it in instalments, and the SDLT would be due on change of title at full value.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Thank you JP this helps me. It's good to know the property value / duty payable is separate from the debt.

          Comment

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