Does the 3% SDLT surcharge apply to the transfer of a share of the former matrimonial home?
3% Additional Rate, Bare Trust, Divorce, Major Interest, Security Interest
“Property A – I am acting for a client in relation to a matrimonial transfer. The property will be transferred to the ex-wife in legal title however my client will still be liable under the mortgage and will have a charge registered which effectively states they are entitled to 21% of the net sale proceeds on any sale in the future – this will be over £40,000.
Property B – Client is now purchasing a new property.
Whilst he will not have a legal interest he will have a beneficial interest in property A.
Will he have to pay higher stamp duty on property B?”
Source: BLG Member
I am assuming that the transfer to the ex-wife takes place before the acquisition of property B. The additional rate will apply to that acquisition if the client has a ‘major interest’ in property A unless property B is a replacement for the client’s only or main residence.
A ‘major interest’ is a freehold or leasehold interest except where the lease was originally granted for a period of seven years or less. The charge may not give him such an interest but it seems that the ex-wife may now be holding as bare trustee for herself and the client. If this is the case the beneficial owners are treated as holding the interest directly and the client will have a 21% interest.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
“I am still confused, does transferring the title constitute a disposal of main interest? He will be purchasing a main residence but will have a beneficial interest due to the mortgage and the charge. Do you think in this case he would have to pay the second home stamp duty due to both the charge and the beneficial interest? Given that he is purchasing a main residence? Perhaps the best way forward be for him to pay the second home stamp duty and to try and claim it back from the Inland Revenue following completion.”
Assuming that the client owns 100% of the property before the transfer of the legal title to his wife who then holds as bare trustee for him (21%) and her (79%) he will have transferred a major interest to her (the 79%). This transaction will not be chargeable either because it is a transfer in connection with divorce or because it is the creation of a security interest.
The exemption from the 3% surcharge where there is a replacement for an only or main residence should, in principle, then apply so that the 3% surcharge does not bite on acquisition of the client’s new home. There is a replacement of a main residence if at some time before the purchase, (which is completed on or before 26 November 2018) the client disposed of a major interest in another dwelling and that other dwelling was, at some time, the client’s only or main residence.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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