SDLT on transfer of interest to spouse

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    SDLT on transfer of interest to spouse

    Me and my wife (not working) got married in 2008 and we bought a house in 2009 however I am the sole legal owner of this house. The outstanding mortgage on this house if £160k. I paid the SDLT applicable at the time.

    We are now purchasing a new property (it will be in both me and my wife's name) by remortgaging our existing house. The new house will become our main residence and we will rent out our existing house. Following remortgage the outstanidng mortgage on the current house will be £375k.

    At the time of remortgage I would like to add my wife as the 99% title holder in the current property as she is a low tax payer. My questions are:

    a) Will this trigger SDLT? Probably yes but I belive for calculating the SDLT the old mortgage amount of £160k will be used as a value instead of the new mortgage value of £375k?

    b) Also will she has to pay additional 3% SDLT on this transfer? I hope not as we both are buying the new property where we will be paying the additional 3% SDLT.

    c) I think it should it be done via a Gift Deed to avoid CGT?

    Is there any alternate better way to plan this transaction from tax perspective? I am a high tax payer and my wife currently is not working so the main purpose is to limit the tax bill on the future rental income.

    An alternate option could be to transfer the existing house on remortgage to a company which probably could save us the additional 3% SDLT that we are paying on the new property which will become our main residence.


    This isn't going to work out how you plan (I think).

    If you transfer all or some of the property to your wife and she joins the mortgage, it will not be a gift, it will be a tax event at the value of 50% of the mortgage value. So SDLT will be due on half of £375k.

    If at the end of the day of the transaction you or your wife own more than one property the 3% is due.

    Your mortage lender is (probably) going to have an issue if your wife owns 99% of the property.
    If she were to die, you would have all the mortgage liability and 1% of the property (the 99% could be inherited by someone else).

    So, yes, an alternative approach is probably worth considering.

    The problem is in the timing.
    If you transferred the ownership of the property now and your wife joined the current mortgage, the SDLT would be half of £160k, and the 3% wouldn't be applicable.
    You would transfer the property as tenants in common, but don't declare and specific split.
    That's not a CGT event.

    If your lender is happy with vastly uneven splits (they shouldn't be, but...) you can (I understand) transfer less than 50% to minimise or eliminate the SDLT altogether.

    When you then remortgage the current property to £375k, there's no further SDLT.

    You buy your new home (which will have the extra 3% SDLT).

    When you've spent whatever is needed to set the "old" property up as a rental, use a deed of trust (and Form 17) to set the beneficial ownership of the now rental property to 99:1 in favour of your wife - which is for tax purposes only.

    Now, that's all off the top of my head and I may have missed something or got something wrong - so take proper legal advice from a family solicitor, because you'll want to align your wills to match at the same time.
    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).


      How would future CGT be worked out on this deal if they should sell the current property at a later date? Would wife have to pay CGT on the difference between 80k and the sale price or the re-mortgage valuation and the sale price?


        jpkeates; Kape65 5

        Thanks. An alternate way could be to have a properly documented gift and declaration of Trust ahead of the refinance.

        So lets say
        1. Feb 2020 - I assign my wife as a 99% beneficiary for the existing property using a Declaration of Trust even though I will have 100% of the legal tite.

        2. May 2020 - I remortgage the house and formally transfer the 99% title of the property to my wife.

        In that case she will only pay SDLT at the original mortgage (£160k) and no additional 3% as she was already the beneficiary owner under the Trust.

        Can this work?


          1 - You can't do that with a declaration of trust as far as I know, you would need to create an actual Trust (which would be registered with HMRC). I don't think you can use a declaration of trust to vary the proportions of jointly owned properties because there isn't a trust to declare anything about.

          2 - Again, you'd be better off simply becoming tenants in common and using a declaration of trust to assign the percentage of ownership. Trusts are simpler to amend than the land registry, and when you come to sell, you may want a different split.

          As before, I don't think your mortgage lender would allow the title to be split like that. You would owe all of the mortgage and have no security against it.

          This is something I know a bit about, but am not an expert, and I think you need an expert!
          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).


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