SDLT – Stamp Duty Land Tax on UK Property
Buying a residential property or transferring all or part of ownership to family member will end up paying stamp duty land tax. However, there is temporary reduced rate for the period of 8th July 2020 until 30th September 2021 any purchase or transfer of ownership will benefit from the reduced tax rate.
When is SDLT required:
- Getting married or entering a civil relationship.
- Making a gift of property if it has an outstanding mortgage.
- Chargeable consideration is given in exchange of share of ownership.
- Person taking a larger share of a joint tenants or tenants in common, and consideration was above the threshold.
- If you transfer a property to a Ltd company. SDLT & CGT are payable on market value not consideration. Unless you can rely on the Ramsey’s case law.
When is SDLT is not payable:
- Making a gift of property without any outstanding debts on it.
- Court order on devoice, and legally separation.
- Part of an agreement
- If the transfer of ownership is less than £40,000
- If you are buying a property in Scotland from 1st April 2015
- If you are buying property in Wales from 1st April 2018
- Property was left for you as a gift in a will even if it has an outstanding debt on it.
- Getting larger share without paying anything as outright gift even with outstanding debts.
Example of chargeable consideration:
A house worse of £200,000 in your own name, with equity of £100,000 and outstanding mortgage of £100,000.
You decide to get married or transfer some of your ownership to your wife let say 50% share.
Whether cash was paid or not, the 50% of the £100k mortgage outstanding becomes liability for the one who is getting the share of ownership, this is known as chargeable consideration and SDLT will be due on it.
However, on this example the SDLT will be nil because it is below the threshold of £125k, however during the temporary reduced tax the threshold is £500k up to 30-09-2021.
But what if the outstanding mortgage was say £300k then SDLT will be payable on (£300 – £125k) * 2% and if it was second home the rate is 3%
Once SDLT is payable then you must notify HMRC of the transfer by filling SDLT return form
Spouse owns a buy to let property in their name with an outstanding mortgage on in, he or she is higher taxpayer, wants to transfer some of the rent to him or her, what to do to in order to reduce SDLT.
Make a transfer of say 1% and ensure that the consideration is less than £40k, then there will be no SDLT payable. At this point the rent sharing will be 50:50 however if unequal share of beneficial interest is desired then a TRUST can be setup with form 17 send to HMRC within 60 days of the TRUST setup. Being as tenant in common
The final note here if there is no chargeable consideration is payable then there no SDLT to pay and transfer between spouses does not attracted capital gains tax, if the transfer of the gift to a family member then CGT becomes payable, unless you opt holdover relief or section TCGA S260 i.e., Setting up a trust and holding it only for 9 years or less but not more because of tax charge becomes due. Using IHT lifetime allowance.