SDLT and Declaration of Trust

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    SDLT and Declaration of Trust

    I own two properties and both are mortgaged in our joint names (each is worth approx. £600k and mortgage of around £400k on each) My partner and I have a Declaration of trust with a 99/1 split. We wish to remortgage shortly and adjust the split to 50/50 at the same time, or afterwards. Will this trigger an SDLT liability at all?

    #2
    a) Is the partner your wife?
    b) is the transfer a gift or is money changing hands
    b) If the transfer is a gift and there is no mortgage associated, then the answer is no. If (as you say) there is a mortgage the answer is yes -- and the gifted mortgage will be over the SDLT threshold.

    So, yes

    You need to transfer an amount such that the amount of mortgage liability transferred is below the threshold

    I think

    Comment


      #3
      I would suggest you consult a tax accountant before doing anything.

      The transfer of 49/99 to partner ( who is not your wife ) , may be viewed by hmrc as a disposal and chargeable to capital gains tax.

      Comment


        #4
        a) the partner is my wife
        b) there is no money changing hands at all
        c) there is an existing mortgage of 400k and we are remortgaging for 525k - we are both jointly and severally liable for the old mortgage and will also be for the new mortgage

        thank you

        Comment


          #5
          There's no CGT issue if the transfer is to your wife.
          Best to sort out the property shares before the remortgage, just for simplicity.
          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


            #6
            But is likely issue of SDLT

            I would have thought 2% on the mortgage amount transferred over 125K i.e about (400-125)/2 = £2700 tax on each property.

            But perhaps I am wrong.

            Comment


              #7
              Not unless there's an actual change in the title of the land, though.
              Which I'd not expect there to be with a trust - that's why people use them.
              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


                #8
                Interesting - I am not sure that SDLT is not payable on a transfer of beneficial interest in a property if the legal title does not alter. I would find that useful - can you reference it if possible? I think the reverse applies - i.e. Where legal title only is being transferred and there is no change in beneficial ownership then there is no stamp duty - not the opposite. In other words if I hold a property on trust for my child with them having 100% beneficial interest, there is no stamp duty payable when they come of age and take over the title.

                Comment


                  #9
                  I think you could be right - I'm forgetting the mortgage aspect.
                  When I did a similar arrangement there was no mortgage and the rules would be different.
                  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


                    #10
                    See examples 3 and 4 here
                    http://www.deedoftrust.co.uk/index.p...y-implications

                    See also
                    http://www.propertytribes.com/deed-d...127624512.html

                    Suggests to me that SDLT is absolutely payable (*if it is payable) based only on a change in beneficial interest.

                    Comment


                      #11
                      But in this case, there's no consideration, the property is already jointly mortgaged.
                      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


                        #12
                        Originally posted by jpkeates View Post
                        But in this case, there's no consideration, the property is already jointly mortgaged.
                        Good point. So the question then is whether joint mortgages are regarded as variable beasts in terms of split, such that mere naming on a mortgage makes that there is no consideration.

                        Comment


                          #13
                          Based on example 2 given in this link, https://www.gov.uk/guidance/sdlt-tra...r-property#ex4

                          You would be paying sdlt charged for transfer of 49/99 share and a consideration based 49/99% of 525K mortgage = 257K .

                          So your wife's sdlt may be ( 257K-125K) x 2% =132K x 2% = £ 2.64K

                          Comment


                            #14
                            I think the wording from here is relevant if it is starting with a jointly held mortgage:
                            http://www.taxation.co.uk/taxation/A...ything-declare

                            "If there is a mortgage on the property care must be taken **only to transfer the net equity between the couple**. Not only is a transfer of the mortgage interests likely to breach the terms of the mortgage with the lender, but being a transfer of an interest in land it could also trigger a stamp duty land tax (SDLT) liability if the sum outstanding is more than £125,000."

                            Quite how one arranges it to make it clear that there is no transfer of any of the mortgage interest I am not sure...

                            Comment


                              #15
                              I think I'm at the limit of my understanding here.

                              Normally a joint mortgage is like a joint tenancy, each person is liable for the whole debt and the whole payment.
                              So there's no consideration here because the change in ownership doesn't affect the borrowers' liability.
                              The HMRC examples seem to assume that the change is that a property share is being "gifted" and the person to whom it is being gifted to also simultaneously acquires the same proportion of the mortgage liability - which isn't what's happening here.

                              It's one reason that lenders don't agree to the change in proportional ownership (or a change from joint to tenants in common - because one lender doesn't own enough of the property to secure their loan.
                              I suspect that no one asked the lender before making the 99:1 split and no one will seriously object to it being put back as it was.
                              Bet it breaches the lenders Ts and Cs though (particularly if it began as joint owners not tenants in common).

                              I'd have thought the process in real life is that the trust is simply torn up and HMRC notified - 50:50 is the default position, so there's nothing needed to evidence that.
                              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

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