Is there a charge to SDLT when there is a change in co-ownership rights?

According to HMRC, yes.  Their view is that the client whose share is, in effect, being reduced from 50% in the whole to a 1% share will be disposing of a chargeable interest to the other party so if there is consideration above the relevant threshold (for example, taking on an increased share of a mortgage) SDLT will be payable.

There is a contrary view that an undivided share is not a chargeable interest for most SDLT purposes (including the 3% surcharge) as it is an interest in the equitable estate of beneficial co-owners and is not itself a legal or equitable estate.  In other words, the major interest is what is owned together, not the interest of each co-owner.  This conclusion is supported by the fact that in certain parts of the SDLT legislation, for  example, paragraph 6F(7)(b) of Schedule 4A, an undivided share in a major interest is expressly included as a major interest but not in Schedule 4ZA (the surcharge provisions).

If the clients are a married couple or civil partners holding property jointly HMRC’s default position is that the income is taxed on a 50:50 basis.  After the joint tenancy has been severed, the actual split can be notified to HMRC using form 17.

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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