Property question ... on the off chance someone has done this

Clearly will be seeking professional advice but wanted to shoot this out before going too far down the road.

In 2012 we bought a flat for a relative jointly with family for £130k. It's a freehold flat so getting a mortgage was fun so the other party took the mortgage on their property (interest only) and it's sat there ever since.

We are now in the position to buy them out and take sole ownership but it's got me thinking about tax liability, specifically stamp duty. The deal would be:

- We repay the £130k mortgage that currently is on their property, to recap the property in question (the flat) is not mortgaged
- We pay them £55k for their share for the increase in value (current flat value is approx £240k)

..so the only 'cash' changing hands is £55k, so is that the amount considered for stamp duty? Or does the mortgage amount come into it too? If the former we're well under the £125k ceiling of course.

Thanks!
Adam

You haven't said if you own another property but if you do then chargeable consideration for higher rate stamp duty is £40k so I believe you would be liable for the total amount you take over.
HMRC's stamp duty is fairly detailed:
https://www.gov.uk/guidance/stamp-du...ntial-property

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Originally Posted by monty77

Clearly will be seeking professional advice but wanted to shoot this out before going too far down the road.

In 2012 we bought a flat for a relative jointly with family for £130k. It's a freehold flat so getting a mortgage was fun so the other party took the mortgage on their property (interest only) and it's sat there ever since.

We are now in the position to buy them out and take sole ownership but it's got me thinking about tax liability, specifically stamp duty. The deal would be:

- We repay the £130k mortgage that currently is on their property, to recap the property in question (the flat) is not mortgaged
- We pay them £55k for their share for the increase in value (current flat value is approx £240k)

..so the only 'cash' changing hands is £55k, so is that the amount considered for stamp duty? Or does the mortgage amount come into it too? If the former we're well under the £125k ceiling of course.

Thanks!
Adam

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Fairly sure stamp duty is payable on the agreed valuation of the property rather than on the amount of money that changes hands? Could be wrong.

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Originally Posted by sevvy

You haven't said if you own another property but if you do then chargeable consideration for higher rate stamp duty is £40k so I believe you would be liable for the total amount you take over.
HMRC's stamp duty is fairly detailed:
https://www.gov.uk/guidance/stamp-du...ntial-property

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Sorry, good point.

I do. In total our home, a rental, and currently a share in this property which I'm looking to make wholly mine.

So the consideration would be:

50% of initial purchase = £65000
'buy out fee' = £50000
= £115000 @ £3540 stamp duty

..any of the fees that I'd pay to do this at least tax allowable deductions? Stinks, doing this to help out family and not to line my own pockets.

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Originally Posted by catch21

Fairly sure stamp duty is payable on the agreed valuation of the property rather than on the amount of money that changes hands? Could be wrong.

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Sounds more like it unfortunately, otherwise there'd be a sea of people selling houses for £1 :-)

..really hoping it's proportional at least though, after all SD was paid on purchase by 50% of the same people involved in this new transaction (e.g. me!)

Maybe reading this incorrectly, but if you bought the property in the first place, you have no SDLT responsibility, as you will not be purchasing (again), but simply raising funds to repay the other party.

A quick call to a property lawyer will answer your question. The audience here is more brogues and sports cars for the hairdressing industry.

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Originally Posted by sarky

Maybe reading this incorrectly, but if you bought the property in the first place, you have no SDLT responsibility, as you will not be purchasing (again), but simply raising funds to repay the other party.

A quick call to a property lawyer will answer your question. The audience here is more brogues and sports cars for the hairdressing industry.

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..names are changing on the deeds so I'd have thought they'd want their pound of flesh but happy days if not the case. Waiting to hear back from my solicitor but wondered if people had done similar things here - point well noted!

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Originally Posted by monty77

..names are changing on the deeds so I'd have thought they'd want their pound of flesh but happy days if not the case. Waiting to hear back from my solicitor but wondered if people had done similar things here - point well noted!

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Names are not changing, unless you add another. Without a purchase taking place from one party to another, there is no requirement. Think divorce scenario etc. Simply one joint owner takes responsibility for the property.

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Originally Posted by sarky

Names are not changing, unless you add another. Without a purchase taking place from one party to another, there is no requirement. Think divorce scenario etc. Simply one joint owner takes responsibility for the property.

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I work for conveyancing solicitor so I'm pretty sure that SDLT will be liable

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Originally Posted by sevvy

I work for conveyancing solicitor so I'm pretty sure that SDLT will be liable

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OK, happy to stand corrected, but I am involved in property development, often with partners and funding. Once complete, the funder will extend the facility to allow a partner to be remunerated and move away should they choose to. In such circumstances, I've not experienced additional SDLT.

Property solicitor says SD only paid on the £50k settlement, still worried about the other 50% of the initial funds though - surely this is part of the payment I'm making to take sole ownership?

Hate this nonsense

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Originally Posted by sarky

OK, happy to stand corrected, but I am involved in property development, often with partners and funding. Once complete, the funder will extend the facility to allow a partner to be remunerated and move away should they choose to. In such circumstances, I've not experienced additional SDLT.

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I'm not a complete expert on SDLT as we only do straight sale and purchases at my firm. We don't do lease extensions or title changes etc so I don't have the full scope of SDLT knowledge that other property lawyers might. Perhaps if your transactions involved the titles being owned by registered entities (Ltd Companies, LLP's) rather than individuals then this might explain why no SDLT has been due. From what I understand HMRC applies the additional tax rules when there is a change to the title of a property that would trigger additional SDLT being due.

There's an eminent tax barrister, Patrick Cannon, who recently published a paper on SDLT. Whilst not all encompassing it's detailed and informative.

https://gallery.mailchimp.com/3f03dc..._10_1_2017.pdf


I've pulled this from the Q&A section of HMRC guide to higher rates for additional properties, it pretty much fits OP's circumstances:

Q8. I own a main residence and also jointly own a buy to let with my brother. I’m planning to purchase my brother’s share, paying him some cash and taking on his share of the mortgage. Will the higher rates apply?
A8. Yes, so long as you contribute £40,000 or more, the higher rates will apply to the total amount you give for your brother’s share, including any mortgage debt that you take on, as you already own another residential property and are not replacingyour main residence.

...and the HMRC / solicitor approved answer was that we pay SD (higher rate as it's not first property) on the value of the transaction. So our half of the existing mortgage (doesn't matter it's not in our name) plus the amount we're paying for their share on top of that. Could have been better, could have been worse.

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Originally Posted by monty77

..any of the fees that I'd pay to do this at least tax allowable deductions? Stinks, doing this to help out family and not to line my own pockets.

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You may ultimately get relief as part of the cost for CGT purposes but nothing against income as far as I can see.