One of the most common misunderstandings around transfers of equity is the assumption that SDLT cannot arise if no money is changing hands. In many cases, that is wrong. Where a property is subject to a mortgage, the assumption of responsibility for part of that debt can amount to chargeable consideration for SDLT purposes, even if the incoming owner pays nothing directly to the existing owner.
This frequently arises where a partner is added to the legal title, one co owner acquires a larger share of a property, or ownership is rearranged following a change in personal circumstances. The transaction may appear to be a gift or a simple change of names at Land Registry, but the SDLT position can be quite different once the mortgage is taken into account.
For example, consider a property owned solely by A with an outstanding mortgage of £200,000. A transfers a 50% share of the property to B and B becomes jointly responsible for the mortgage. Although B may not pay A anything in cash, B may be treated as assuming responsibility for £100,000 of the existing debt. That £100,000 can constitute chargeable consideration for SDLT purposes.
The same principle applies where somebody who already owns part of a property acquires an additional share. The relevant consideration can include the proportion of the outstanding mortgage attributable to the extra interest being acquired, meaning that the SDLT calculation cannot be determined simply by looking at any cash payment between the parties.
This is particularly important because transfers of equity arise in a wide range of circumstances. A spouse or partner may be added to the title, one owner may buy out another, or a property may be transferred as part of wider family or financial arrangements. Each transaction needs to be considered on its own facts, including the amount of mortgage debt involved and the extent to which responsibility for that debt is changing.
There is then a second layer of analysis. Once the amount of chargeable consideration has been established, the purchaser’s wider circumstances may affect which SDLT rates apply. Ownership of other residential property, for example, can be relevant when considering the higher rates for additional dwellings.
For conveyancers, the key point is that SDLT consideration is not limited to the money appearing on a completion statement. Mortgage debt can be just as important. A transaction described as a transfer of equity may therefore require a more detailed SDLT assessment than its relatively straightforward conveyancing mechanics might suggest.
To find out more about Compass book a no obligation meeting here.
This article was submitted by Compass as part of an advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the advertiser and not those of Today’s Conveyancer.
