The Stamp Duty Land Tax Trap – when do you have to pay it on a property transfer?

Three things to remember which can help.

This often-overlooked tax has been in the news over the last year or so because of the SDLT holiday which ended in June 2021. The holiday on residential property was brought in by the government to buoy up the sales of property and help the economy while we were all at home wishing we lived somewhere with a view.

What was not in the news is the fact that you may have to pay Stamp Duty Land Tax not just when you buy a home but also if you transfer a property to a husband, wife, partner or transfer a property between family members.

A common misconception is that property that changes hands between couples is automatically not liable to Stamp Duty Land Tax, after all if you are married, isn’t ALL your property shared?

Not necessarily!

Likewise, we often think that because we transfer property between family members and no money has changed hands that no tax is due. Sadly, this also may not be the case.

The only time that a property can be transferred to joint names and is exempt from this tax is where:

No money or other type of payment changes hands. The obvious example is a gift. You could only claim this exemption, however if you were not taking over part of a mortgage – for more on this see below.
A property has been left to you in a Will. This is straightforward. If a property is transferred to your name as part of an inheritance left to you in a Will you will not have to pay Stamp Duty Land Tax.
A property transfer has taken place because of divorce or dissolution of a civil partnership. To qualify for this exemption, you must ensure that the property transfer is recorded in a court order or formal written agreement. A private verbal arrangement will not qualify. Cohabiting couples beware! Unfortunately, this exemption does not apply to you. You will not be able to claim this exemption if you separate and transfer your properties to each other.

The “Chargeable Consideration” Issue

While there is no tax to pay when no money (or other type of payment) changes hands, the Stamp Duty Land Tax will have to be paid on ANY Chargeable Consideration.

This could be:

Goods
Works or services
Release from a debt
Transfer of a debt, including the value of any outstanding mortgage

If you are getting married, entering a civil partnership or if you decide to live together and pool your property resources by transferring property that has a mortgage on it into joint names, speak to an accountant or solicitor to check for any Stamp Duty Land Tax you may have to pay. The person taking on the mortgage as part of the property transfer is releasing the other property owner of part of that mortgage debt. The other property owner is transferring his or her debt to the new joint owner, so this is why you might have to pay Stamp Duty Land Tax.

The good news is that everyone can take advantage of the Stamp Duty Land Tax threshold (which of course was higher last year during the tax holiday). The threshold set by the government does vary, so it is important that you check that you are applying the current rates on the threshold on any property purchase or transfer.

If you bought a house for £895,000 in October 2021 the Stamp Duty Land Tax you would have to pay would be calculated as follows:

0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £645,000 = £32,250
Total SDLT = £34,750

Below is an example of how you can apply the threshold on a property transfer:

A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000. The owner transfers a half share of the property to his or her partner.

The partner:

Pays cash for half of the equity – £45,000
Takes responsibility for 50% of the outstanding mortgage – £45,000

So, the “Consideration” (legalise for anything of value) for Stamp Duty Land Tax is £90,000, made up of:

The cash payment
50% share of the outstanding mortgage

£90,000 is below the current SDLT threshold so there’s no tax to pay. You must still inform HMRC about the transaction on an SDLT return (below).

One last thing to remember when buying any property together, is if it is an investment property or will be in the future, and you are both thinking of selling the property at a profit, you may both be better off accounting for this now, if you can afford it.

When comparing taxes (and there is no getting away from those!) and planning for a future profit the rates for Stamp Duty Land Tax, at between 2% and 5%, are much lower than the rates for Capital Gains Tax of between 18% an 28% (after deductions you are entitled to take account of.)

Everyone has a personal allowance for Capital Gains Tax so you might be better off transferring your investment property or second home into your joint names and pay the Stamp Duty Land Tax now so that you can take advantage of your separate personal allowances for Capital Gains Tax when you decide to sell your property.

If you might be paying unequal contributions to jointly owned property it is extremely important also that you think about how you would both want to share that property when you came to sell it. You might need a trust deed or other formal written agreement to record your shares in that jointly owned property.