Are there any SDLT consequences where an unmarried couple pool their properties?

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“We have a couple who are moving in together. They each own a dwelling which is mortgaged. He is going to rent out his property and they will be transferring the ownership of each of the properties into their joint names so effectively at the end of the day they will both own two properties and only one will be a main residence.

There is no consideration passing except the half of the mortgage debt on each property.

If the half debt on either is below the threshold no duty will be payable for that property but a return will need to be submitted. If the half debt on either is above the threshold duty is payable but the question is whether it is at the higher rate?

If you could give it some thought I would be grateful as HMRC were less than helpful.”

Source: BLG Member

 

Ordinarily you would be correct and the mortgage debt assumed would be consideration but here there is an exchange and special rules apply.

Section 47 FA 2003 provides that where a land transaction is entered into by a ‘purchaser’ wholly or partly in consideration of another land transaction being entered into by him as vendor, each transaction is taxed as if it were distinct and separate from the other.  Each party must complete a separate land transaction return for his transaction.  A ‘purchaser’ for this purpose is a person acquiring an interest in land and a ‘vendor’ is a person disposing of one.

If either leg of the exchange involves a ‘major interest’ the amount of the consideration for each transaction is the market value of the interest acquired.  A ‘major interest’ is a freehold or leasehold interest unless, in the case of a lease, the lease was originally granted for a period of seven years or less.

This means that here you have two land transactions taking place at market value.  Assuming that the interest being acquired in each case is worth more than £40,000 the 3% surcharge will apply to both.  This is because, at the end of the day of completion of the relevant transaction, each party will have a major interest in another dwelling and the relief for replacing one’s only or main residence will not be available.

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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