SDLT – Transfer of equity and remortgage

Mr A and Miss B, who were not married, wished to rearrange their financial affairs.  The main residence which they shared and which had been funded by Mr A, was valued at around £900,000. The existing mortgage was £800,000 and the couple were looking to move it to another lender. The house and the mortgage were both in the name of Miss B.  The new lender insisted on both Mr A and Miss B being on the title and taking out the new mortgage so there had to be a transfer of equity.

Mr A had the means to repay £200k of the mortgage.  The proposal was that Mr A give £200,000 to Miss B to reduce the current mortgage balance to £600,000.  On the transfer of the property into joint names and the taking out of the new mortgage, Mr A and Miss B would make a declaration of trust recording that, from that date, the beneficial ownership of the property was 75% Miss B and 25% Mr A.

The assumption of a debt is consideration for SDLT purposes by reason of paragraph 8 of Schedule 4 FA 2003.  The deemed consideration for SDLT purposes for the transfer of the 25% interest in the property by Miss B to Mr A would be 25% of £600,000, £150,000 (the percentage of the mortgage assumed by Mr A being treated as consideration).

The declaration of trust needed to take effect on the transfer into joint names and the gift by Mr A of the £200,000 must not be consideration for the transfer of the 25% share by Miss B.  As there would be a small SDLT charge (£500) an SDLT1 (land transaction return) needed to be completed.

At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.