Transfer of equity stamp duty

28/04/2019
In a transfer of equity there is stamp duty land tax payable if the consideration is large enough. Some clients are confused around what stamp duty is payable, especially if the transfer of equity is between joint owners of property who paid the full stamp duty land tax liability when they purchased the property - we cover this in detail in our article Stamp duty on transfer of property between spouses.

What is the stamp duty land tax liability on a transfer of equity?

Stamp duty land tax is payable when transferring equity. If the transaction provides an individual an interest in land, stamp duty land tax (SDLT) or land transaction tax (LTT) will be payable by reference to any chargeable consideration given for it.

What is chargeable consideration?

Chargeable consideration is defined in the Finance Act 2003, Schedule 4, Stamp duty land tax: chargeable consideration. Consideration can be cash changing hands or the taking on of a debt (such as a mortgage or personal loan). To work out the total consideration you add the cash/money being paid for the assignment and the new owner’s share of the existing mortgage/loan debt. If the total consideration exceeds the stamp duty threshold, then stamp duty is payable at the prevailing rate. Any stamp duty land tax should be declared and paid to HMRC within 30 days after completion of the transaction otherwise you may incur penalties.

In all of the above examples, stamp duty land tax could be payable by transferring the equity, regardless if the stamp duty land tax was payable in full by the existing owners of the property.

Is there second home stamp duty for married couples or spouses?

There is no second home stamp duty for spouses or civil partners for transfers of equity. HM Revenue and Customs give a detailed explanation on the point here - Transfers of interests between spouses and civil partners

Is my existing mortgage consideration?

Transferring ownership of a house with mortgage is a way that consideration is paid by the person receiving the equity and as such stamp duty is payable if above the threshold.

For Example: Ian owns a property valued £300,000 with a £275,000 existing mortgage. Jane, the wife of Ian, is transferred onto the legal title. Jane owns 99% of the beneficial interest and Ian owns 1% and Jane doesn't pay Ian any money for her share. Stamp duty land tax is payable on the consideration based on 99% of the existing (mortgage) debt of £275,000 which equates to £272,250 as she takes on 99% of the existing debt.As Ian and Jane are married there is no second home stamp duty, however there is standard rate stamp duty of £3,625 for the transaction. Click to use our up to date stamp duty calculator.

As we see above it is important to note that if someone owns 99% of the beneficial interest, they are treated for tax purposes as owning 99% of the existing debt/s (mortgage or second charges) over the property, even if all of the parties named on the mortgage are joint and severally liable for the mortgage.

Remortgaging? Is the existing debt the new or old mortgage?

It is the existing mortgage taken on and not the new mortgage. For example, if you have an existing mortgage of £250,000 and remortgage for £350,000, it is the £250,000 existing debt that should be used for stamp duty land tax consideration.

Transfer of Equity Stamp Duty Land Tax Calculator

 

Money Changing Hands

What is the total Existing Debt on the property?

What percentage of the existing debt is being taken on?

Is there any other consideration given for the equity?

Existing Debt taken on

£0
£0
£0
You are responsible for paying the correct stamp duty based on your own circumstances. You should call HMRC for help with Stamp Duty Land Tax queries and to confirm your own personal liability on 0300 200 3510 Opening times: 8.30am to 5pm, Monday to Friday (closed weekends).

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Examples of stamp duty land tax for transfers of equity

    1

    Severing joint tenancy for tax purposes

John and Michelle own their a property as joint tenants. John and Michelle agree to sever the joint tenancy and own the property as tenants in common with a beneficial split of 99% to Michelle and 1% to John. The property is currently valued at £500,000 and the existing mortgage is £350,000.

Michelle doesn't pay any cash. The consideration for the transaction for stamp duty land tax is the additional existing debt Michelle takes on. As a joint tenant she is viewed for tax purposes to have a 50% share of the mortgage. As Michelle is receiving an additional 49% (99% less 50%) then she is taking on an additional 49% of the existing debt and stamp duty land tax is payable on the £171,500. As Michelle and John are married there no second home stamp duty, however there is standard rate stamp duty of £930. Click to use our up to date stamp duty calculator.

Beneficial interest in unequal shares for spouses or civil partners? You need to fill out a Form 17

HMRC will assume jointly owned property is shared equally for tax purposes unless declared to them in a Form 17. Click to read more about the Form 17 and how to fill it out online

    2

    Transfer of equity to 99%/1% with unmarried partner and a second property

Jack owns a property on her own. Jack has a girlfriend Katherine and wants to give Katherine 99% of the property for tax purposes. The property is currently valued at £500,000 and the existing mortgage is £350,000. Jack owns another property.

Katherine pays £50,000 in cash. The consideration for the transaction for stamp duty land tax is:

  • £50,000; plus
  • 99% of the existing debt of £350,000 - £346,500
  • £396,500 Total Consideration

As Jack and Katherine aren't married and Jack owns another property, second home stamp duty is payable as well as the standard rate stamp duty making the total liability £21,720 (£9,825 standard rate plus £11,895 second home rate). Click to use our up to date stamp duty calculator.

How do you declare and pay the stamp duty land tax?

You can file your stamp duty land tax return with HMRC by clicking here https://www.gov.uk/guidance/stamp-duty-land-tax-online-and-paper-returns and pay any liability by clicking here https://www.tax.service.gov.uk/pay/stamp-duty-land-tax/choose-a-way-to-pay.

We do not provide stamp duty land tax advice. You should call HMRC for help with Stamp Duty Land Tax queries and to confirm your own personal liability on 0300 200 3510 Opening times: 8.30am to 5pm, Monday to Friday (closed weekends).

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