Do I Pay Stamp Duty Land Tax (SDLT) on a Transfer of Equity?
When you own property and want to transfer the property to someone else, this is known as a transfer of equity. A question we are regularly asked is "What are the tax implications of stamp duty on transfers of shares?" Depending on the circumstances, SDLT may or may not be owed when the equity in property or land is transferred from one person to another. In this blog, we explain what transfer of equity means.
What is Equity?
Equity refers to the percentage of a property that you own outright. This is the value of the property less any outstanding mortgage on the property.
What is a Transfer of Equity?
A "transfer of equity" also called "capital transfer" occurs when an existing owner of a property (or land) adds or removes one or more persons from the title (ownership) of the property or transfers full ownership of the property to another person.
You can transfer money if:
● Selling your share in a property
● Buying out a joint owner
● Buying out an ex-partner
● Gifting a property (or share in a property) to a child
● Inheritance Tax (IHT) planning.
● Adding a new partner or spouse to the title of your property
Why do People Undertake a Transfer of Equity?
There can be many reasons why a person might consider a capital transfer. For example:
● Divorce or separation.
● A new relationship (to add a new partner to the deeds).
● Marriage or civil partnership.
● Property transfer to one individual if you have a share in a jointly owned property.
● Transfer property from a company.
● Gifting a property or share in a property to a family member such as a child or grandchild.
● Inheritance Tax (IHT) planning.
● Buying out an ex-partner.
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax payment to HM Revenue & Customs (HMRC) when you buy property or land in England and Northern Ireland. The amount of real estate tax (or whether you have to pay taxes) depends on the purchase price and your situation as a buyer.
In Scotland, you pay Land and Buildings Transaction Tax (LBTT), and in Wales, you pay Land Transaction Tax (LTT).
The current SDLT thresholds are:
● £250,000 for residential properties.
● £425,000 for first-time buyers buying a residential property worth £625,000 or less.
● £150,000 for non-residential land and properties.
Is SDLT Payable on Transfer of Equity?
Whether stamp duty land tax (SDLT) is payable on the transfer of capital depends on the circumstances, SDLT may be payable on the transfer of property or land from one person to another. See below for more details on a variety of circumstances.
What is the Stamp Duty Threshold on a Transfer of Equity?
stamp duty land tax is payable if billable consideration exceeds £250,000. The eligible consideration is calculated on the capital transfer as follows:
The amount of the debt transferred or incurred (the mortgage) plus the amount paid for the principal.
If the transferred capital relates to a second home, for example, a holiday home or rental property, the stamp duty land tax threshold is £40,000.
Under What Circumstances is Stamp Duty Paid on a Property Transfer?
Whenever capital is transferred from one person to another and the taxable consideration exceeds the threshold, SDLT is paid. This also applies if the capital recipient already owns a share.
However, there are special circumstances in which stamp duty land tax may be viewed differently:
Give Away (Gift) a Property
If you give property (or share property) to a child, spouse, significant other, or other family member and there is no consideration, SDLT is not due.
You Have Left a Property in a will
Generally, if you receive property (or a portion of the property) in a will and no payment is made for the interest, no SDLT is payable.
There is no SDLT to pay even if you assumed the mortgage at the time of the person's death.
Getting Married, Entering into a Civil Partnership, or Moving in Together
SDLT may be payable if you transfer capital to a spouse, domestic partner, or domestic partner and the taxable consideration exceeds the SDLT threshold.
Divorce of Civil Partnership
If you receive property (or share property) pursuant to a court order or settlement because of your divorce, legal separation, legal separation, or marriage annulment, no SDLT is generally payable.
Separating from a Partner (not married or in a civil partnership)
If you transfer interests after separation from a partner and are not married or in a civil partnership, SDLT will be paid on the eligible consideration.
When is Stamp Duty Payable on a Transfer of Equity?
If you transfer capital from one person to another and the taxable consideration exceeds the threshold, SDLT may apply. Even if the person receiving the capital already owns an ownership interest, SDLT is paid if the total taxable consideration exceeds the threshold.
Marriage, Civil Partnership, Living Together
If you marry, enter into a civil partnership, or move in together, SDLT may apply if you transfer interests and the qualifying consideration exceeds the SDLT threshold.
Transfer or divide up jointly-owned property or land: unmarried couples and other joint owners. If the co-owners are not married or in a civil partnership, if they transfer an interest in the property or property from one co-owner to another you may have to pay stamp duty.
If You Transfer Land or Property to or from a Company
When ownership is transferred to a company, stamp duty may be paid on market value, not attributable consideration.
Summary
The transfer of Equity can occur for any number of reasons, be it a legally separated marriage, divorce, new civil partnership or remarriage, family members to whom the capital is being transferred with tax purposes for IHT planning, or a new person owning the property takes on a new relationship. How you transfer the capital and whether you are liable for stamp duty and property tax on the transfer depends on your circumstances. There are other considerations if the property also has a mortgage debt. For these reasons, it is advisable to seek professional advice
before transferring capital.
Contact our team of experts today for personal tax advice on SDLT and conveyance or transfer of capital. You can reach our team at 07985689912 or email info@protaxaccountant.co.uk