Transfer of equity question

[londonrulz]

I have a property worth 95k (mortgage amount 71k) currently in my sole name. Planning to remortgage at some point later this year. Want to transfer equity to my wife(also a home owner) such that I don't have to pay the extra 3% sdlt.

- Believe there is no extra SDLT for under 40k transactions. But is that for mortgage amount or full value of the property?

example 1: 50% of 95k is 47.5k, she will pay SDLT on additional 7.5k
example 2: 50% of 71k(mortgage amount) is 35.5k, and she wont need to pay SDLT.

So if we are tenants in common at 50%, which example of above will correct for us?

Appreciate your input.

[Claymore]

Example 2 is correct.

[bhodgkiss]

Ok how about this one please (might as well keep it in the same thread)

- I wish to transfer 50% of my BTL equity to my partner (not married)
- Mortgage £150k
- Paid £205k
- Value now £225k

We are both joint owners on another property already

What CGT and SDLT implications would there be please?

She doesn't work, but it looks like the lender will allow us to have a joint mortgage, so its just whether the tax implications of transferring outweigh the income tax savings over say 5 years.

[Gordon999]

bhodgkiss,

1. If you transfer 50% of BTL property as a gift , then the sale consideration is just 50% of £150K mortgage .

Therefore your partner will be charged 3% x £75K = £2,250 sdlt to get the property registered under joint names.

2. Your 50% disposal of property , the capital gain = 50% ( £225K - £205K ) = £10K which can be covered by your capital gains tax = Nil CGT .


3. The annual rental profit will become apportioned 50% to each joint owner. Your partner's 50% share of income will be covered by her annual personal allowance.

You will have to inform HMRC by letter of joint ownership by A& B from date of transfer .

You could also add " We as joint owners have decided the rental income shall be shared A 0% and B 100% " and both sign the letter and send by registered post.

If there is no objection, the you can assume the 100% income to partner was accepted by hmrc.

[bhodgkiss]

Many thanks, that sounds promising.

Does my partner also have to pay an extra 3% SDLT due to already owning a property?

Aside, I thought that if she only owned 50%, we couldn't split the rental income any differently to 50:50?

But youre saying we can apply to HMRC and they might approve her taking 100%?

I was told in another thread that strictly, the rental income split could only match the ownership split - which did confuse me as I thought the 'tenants in common' agreement was possible to make the split non-50:50 (or is that spouse only?). Again, we're not married.

Further questions please:

Are you saying that SDLT is based on mortgage remaining, when gifting half a property? Surely it should be based on the 'current equity in the property'?

So if I was fortunate enough to have £70k lying around, I could pay off this much of the mortgage (to leave just £80k remaining) and then the 50% split for my partner would only be £40k, so she'd pay no SDLT?
Is that correct please? I'd have assumed that gifting her half the property would be giving her £225k-£150k (the amount we have in the property) then divide by two = £37.5k.

Finally, I presume that as 50% is 'gifted', when we sell the property in the future, my partner doesn't have to pay any increased CGT? The CGT would just be the difference between £225k and the sale price (say £240k in 2 years time) which we split between us (Which for example would be zero CGT each)

Lots of questions sorry

[Gordon999]

bhodgkiss,

Please remember this is a forum for discussion and what is said may not be entirely true because the forum members ( including myself) are not professionals and could be telling a load of half truths because the tax rules change from time to time. You can expect to get conflicting comments in the forum . So you should check with the real professionals before you act.

Solicitors and Chartered Surveyors and Accountants make their living from their expertise and giving professional advice. They don't give their expertise for free to anyone in this forum. They also have pay for insurance cover for professional mistakes.

You should google search the hmrc website on rates for sdlt rates and property transfers as gift.

[jpkeates]

Aside, I thought that if she only owned 50%, we couldn't split the rental income any differently to 50:50?

But youre saying we can apply to HMRC and they might approve her taking 100%?

You use a deed of trust (and notify HMRC with Form 17).
A solicitor can set that up when transferring the title.

You can set whatever ownership split you like (not 100%:0% though as then you're transferring the whole property, but 99%:1% is possible).
That's a real split in beneficial ownership though, which could affect a divorce settlement.

[bhodgkiss]

Yes of course, im only asking people who might know more than me, as this scenario in isolation has a very clear implication, I just don't know the rules.

So why is SDLT based on mortgage remaining please, when gifting half a property?

[jpkeates]

Because a husband can gift property to his wife without SDLT (and vice versa), but the value of any mortgage is consideration, so HMRC view that a financial transaction has occurred and it's a sale, not a gift.

[bhodgkiss]

Its still not clear to me:

- We're not married, and form 17 is for married couples only. So this info above is actually wrong?
- I believe that the lender would only allow a 50:50 split on the mortgage (and not any other ratio). That's for me to work out..... so onto the next point
- Even wit a 50:50 ownership split, we can do the 'tenants in common' agreement which i've heard people talk about?
- So if the lender did allow an unequal ownership split, could I just transfer 1% legal ownership but my partner take 99% income from 99% beneficial ownership?

I seem to hear conflicting things constantly
But the rules must be black and white?

[jpkeates]

Sorry - the original poster is asking about transferring to his wife, and I was answering a different question (albeit on that exists in my head only).

If you're not married the tax picture is different, yes - the transfer happens are market value not mortgage value.
Noted
You can own property in two ways where there are more than one owner - joint tenants or tenants in common. Both are available to you as co-owners (with your lender's permission).
You can own as tenants in common in different proportions to the income split (tax follows beneficial ownership not title) but it has to be legitimate - and a 1% ownership with 99% of income could be subject to challenge (if it was legitimate it would survive the challenge. If the rent was actually paid into your joint bank account, or it went to your partner and she used it to pay joint bills, it might not).

The rules are black and white, there are just a lot of them - tax is an art not a science.

[bhodgkiss]

Many thanks
One question that I''m still not clear on is this please:

For tenants in common, do we have to have 50:50 legal ownership? Or could I own 90% (so just transfer my unmarried partner 10%) and we still do a tenants in common split with her at 90% income for example, and me just 10%.

I'd assume its fair to say that couples must do the tenants in common agreement all the time to legitimately reduce tax, and provided the money goes into my partner's account and she uses it for 'her own beneifit' that's viewed as fine?

[jpkeates]

You can have the ownership split however you want (90:10, 50:50 or 10:90).
The income split can be the same or it can be different.

However, the ownership split will be real - your partner could sell their share without your consent, and when either of you die the portion of the property is part of each of your estate and goes where your will says it does (or if no will, probably to the state).
The income split also has to be real (for the payment of tax) - so you can't simply share the income equally (or use it to pay for things you share) and decide that 90% of it is income for your partner for tax purposes.

[londonrulz]

Example 2 is correct.

Since the thread has got diverted in discussion of slightly different scenario (although good to know). I believe I can go ahead and just do tenants in common(equal shares) on the title, and my wife will have no SDLT to pay.

full value of property 95,000
Mortgage value £71250 (as 50% of that is < 40,000)

Thanks

[Claymore]

Correct. Value is less than £40k so no stamp duty payable.

I have done this previously with one of my husbands properties. He gifted me a percentage and based on the mortgage figure, that percentage was below 40k so I didnt have any stamp duty to pay.

Also, I understand (just for info only) - when gifting between husband and wife, capital gains tax is not payable.