A common way to mitigate tax on rental income is to transfer a rental property to a lower tax-paying spouse or civil partner. Usually, this will also involve the assignment of any mortgage which is attached to the property. Most advisers are aware that stamp duty land tax (SDLT) can be triggered in such assignments (because the mortgage is chargeable consideration and there is no spousal exemption for SDLT). This position still applies, however, HMRC have announced a concession in respect of the rates.
SDLT is based on ‘chargeable consideration’ (i.e. the amount actually paid for the property). On a mortgaged property, where the transferee takes on some of the mortgage, SDLT will be chargeable on their portion of the mortgage – even when no money actually changes hands.
However, the introduction of the additional 3% SDLT surcharge could give rise to what were arguably absurd results in such situations. You may recall an earlier Tax Bite where we analysed the wording of the legislation and determined that the 3% surcharge would be payable in this scenario. This was due to the fact that the transaction must involve ‘the replacement of the buyer’s only or main residence’ for the surcharge not to apply.
We are pleased to learn that the position has since been rectified in a minor SDLT amendment in the Autumn Budget 2017 (overshadowed by the more headline-grabbing first time buyers’ relief). The 3% surcharge is disapplied where an individual ‘buys’ a property from their spouse/civil partner. This is on the proviso that both individuals are living together, although they do not have to live in the actual property in question. This should provide more flexibility for husband and wife landlords to plan their affairs without being stung by high SDLT charges.
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