Stamp duty land tax (SDLT) window of opportunity for inter-spouse transfers

The issue

Spouses often want to transfer property between themselves for a variety of reasons. These can include:

1. Splitting assets in anticipation of divorce or separation.
2. General security for both spouses.
3. In order to achieve a preferable income tax or capital gains tax outcome.

Capital gains tax is not generally a problem for these kinds of transfers as they can take place at nil gain/nil loss provided that the transfer does not take place after the year of separation.

There can however be a bit of an SDLT headache where mortgages are concerned. This is because SDLT is a tax based on consideration and taking on a mortgage is a form of consideration.

Example

A year ago Jack transferred a £1M residential rental property to his wife Jill because she had no other earnings and Jack paid tax at a 45% marginal tax rate. The property had a £500,000 mortgage attached to it and made rental profits of £25,000. By moving this income into Jill’s hands, Jill will pay £2,500 annual tax rather than the £11,250 of annual tax that Jack would pay (well he actually would have paid more because of the interest restriction rules but I do not want to get into that!). In this case Jill would have had to pay £15,000 of SDLT in respect of the £500,000 consideration (the mortgage) that she is deemed to have paid. Fortunately Jill did not have to worry about the 3% SDLT surcharge because that was exempted for inter-spouse transfers in the 2017 Autumn budget.

SDLT holiday

On 8 July 2020 the Government announced an SDLT ‘holiday’ until 31 March 2021 on the first £500,000 of consideration for residential properties. If the above example were to take place now then no SDLT would be payable (saving SDLT of £15,000).

Forbes Dawson comment

With everything else going on, many couples may have missed this subtle point.  It will be a shame if they end up subjecting themselves to SDLT after 31 March 2021 if an earlier transfer could have avoided it. There may even be scope to benefit from this holiday for more than one property transaction, although in some cases it may be difficult to stop consideration falling within linked transaction rules (which would mean that only one £500,000 nil rate band would be obtainable).

 

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