Transfer of Equity Stamp Duty

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.

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.

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.

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

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.

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.