Transfer of Equity Stamp Duty

Do I Pay Stamp Duty Land Tax When Transferring Property into My Partner’s Name?

When it comes to property transfers, Stamp Duty Land Tax (SDLT) can catch you out. The basic rule is that married couples and civil partners are NOT exempt from SDLT if they transfer ownership to each other, although they may not have to pay the second-home rate. There are exemptions if you are divorcing or legally separating, however.

What is a matrimonial property transfer?

It’s common for married couples and civil partners to transfer the beneficial ownership of property to each other. They may do this for tax reasons, for example, to take advantage of capital gains tax reliefs, or as part of their estate planning to ensure the property can be left to children or other family members when one partner dies.

The transfer could also form part of an informal agreement, for example, to change the ownership shares if one partner is paying off the mortgage and wants to get some equity in return.

Is SDLT payable on matrimonial transfers?

Even though you may have paid SDLT in full when you purchased the property, there could be a second charge to SDLT when you transfer whole or part ownership to your spouse. This is the case even if no cash is changing hands.

Stamp Duty Land Tax is payable on the “consideration” for the transaction. This usually is the purchase price, although it is unlikely that spouses will pay money as they tend to gift matrimonial property to each other. However, consideration also includes a mortgage or personal debt that someone takes on. To work out the consideration, you add the money being paid for the share of the property being transferred and the new owner’s share of the mortgage debt.

If the total exceeds the stamp duty threshold, which currently is £250,000 for your main residential property, then SDLT is payable at the prevailing rate.

Here’s an example:

Simon owns a property valued at £500,000 with a £350,000 mortgage. He transfers the legal title to his wife, Sarah. Sarah owns 80% of the beneficial interest and Simon owns 20%. Sarah doesn’t pay any money for the transfer, but she does take on 80% of the mortgage. SDLT is payable on the consideration, which is 80% of the existing debt of £350,000. This equates to £280,000.

If this transaction involved Simon and Sarah’s only home, then SDLT would be payable at 5%, which is the rate applicable to transactions with a consideration between £250,001 and £925,000. Sarah would have to pay SDLT of £1,500 (5% of £30,000).

If the transaction involved a buy-to-let or a second home, then the SDLT bill would also be £1,500 as long as Simon and Sarah were living together at the time of the transfer. Usually, there’s a 3% SDLT surcharge payable on second properties, but this is disregarded for transfers between cohabiting spouses or civil partners.

If Simon and Sarah were separated, the transaction would count as a higher-rate transaction. SDLT would be payable at 8%, for a bill of £2,400.

Is it possible to avoid or reduce SDLT on matrimonial transfers?

Yes – you don’t pay SDLT on the transfer of property between spouses or civil partners if it’s done:

• As part of a formal, written divorce or separation agreement signed by both of you, or
• Following a court order because you’re divorcing or dissolving a civil partnership.

It’s very important for couples who are separating to take legal advice to ensure that they do not incur an unexpected bill for SDLT. If Simon and Sarah had asked a solicitor to write a formal separation agreement, for example, they could have avoided the SDLT bill entirely as the transfer of property between them would be exempt.

Where the property is being transferred for reasons other than a separation, such as estate planning or to access capital gains tax reliefs, you might be able to reduce the SDLT bill if you structure the transfer carefully. The SDLT rules are becoming increasingly complex. It’s important to get professional support to ensure that you’re not paying SDLT which could have been avoided with the right advice.