Is SDLT payable?

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A client bought this home (mortgaged) back in 1987 jointly with his mother and was their main PPR until 1996 when they moved to another property and rented this property out.

The mother of the client has never worked and has been a housewife all her life and played no part in paying any mortgage etc. (They have a mortgage in joint names)

Once they started renting the property, my client has been declaring the rental income solely on his TR, as he did not want his elderly mother to be dragged into the tax system.

10 yrs ago, my client converted the house into 2 flats and has been renting these out since.

He now needs to remortgage the property, but mortgage lenders are not happy to have a mortgage in the mothers name since she is 83.

He is thinking of either:

1. Transfering the property in his own name, but I guess SDLT will be payable as it will be seen as a deemed disposal of his mothers interest

or

2. What if they split the title deed for the 2 flats and the clint kept one flat in his name and the other in his mother's name?

Since the outstanding mortgage is quite small compared to the value of the 2 flats, the flat in his mother's name could be mortgage-free and the one on the clients name could be remortgaged in his name

 

Question is: Would there be SDLT payable on splitting the title deeds and transferring each flat into the client's name and his mother's name since the ownership is not changing as such?

Replies (19)

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By Paul Crowley
26th Nov 2021 18:39

There is a significant tax problem here and it is not SDLT. Without some written deed the wrong person is paying income tax

Mum could just give her share to son, but that raises CGT
But then consider if CGT is better than IHT

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RLI
By lionofludesch
26th Nov 2021 18:44

The big problem is the client who just can't be bothered.

Until there's another, bigger problem to deal with.

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By David Ex
26th Nov 2021 18:50

Max Maxwell wrote:

2. What if they split the title deed for the 2 flats and the clint kept one flat in his name and the other in his mother's name?

"You have to ask yourself one question: Do I feel lucky? Well do ya, punk?"

Oh, client! Sorry.

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By SteveHa
26th Nov 2021 18:52

Why does he "need" to remortgage? Are there alternative avenues?

It could make a difference to planning.

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By David Ex
26th Nov 2021 20:05

Has the client been claiming 100% of the mortgage interest?

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By The Dullard
26th Nov 2021 20:49

It seems likely that the mother gave the son her interest in the property in 1987. If she still has all the faculties, a trust deed could be drawn up currently confirming that gift. I believe that holdover relief under FA 1980, s 79 was still available in 1987; I don't think it disappeared until 1988.

If the son is the beneficial owner already, then the transfer of the legal title would not attract SDLT.

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Replying to The Dullard:
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By David Ex
26th Nov 2021 21:11

The Dullard wrote:

It seems likely that the mother gave the son her interest in the property in 1987.

Could she have gifted her share of the property if it was mortgaged?

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Replying to David Ex:
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By gillybean04
27th Nov 2021 00:22

No, not without having to repay that mortgage or obtaining the lender's permission.

As neither of those seem to have happened, we're told he declared the rent as he didn't want his mother dragged into the tax system (not because she'd gifted her interest) and also that he is now looking into transferring that same interest (if they had already transferred the interest, they wouldn't now be looking to transfer it)...I'm failing to see the reason the dullard would think "it seems likely" a transfer has already happened when everything points to the contrary.

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Replying to David Ex:
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By The Dullard
27th Nov 2021 20:24

Yes. It might be in breach of the terms of the mortgage deed, meaning that the lender can act as if it didn't happen, but otherwise it is perfectly possible that it happened as a matter of fact.

The lender might not be too bothered in any event. The debt is secured on the property and the co-mortgagors are joint and severally liable for the debt, so the lender's position isn't compromised.

And, since the son is about to remortgage in his sole name that would bear out those facts and the existing lender will probably care even less once there loan is repaid.

After all, the first time the trust deed needs to be in existence is at completion. Until then only mum and son know about it. They probably just didn't realise it should be written down. That's how laypersons work. :)

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Replying to The Dullard:
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By Paul Crowley
26th Nov 2021 21:21

If 1987 then no CGT issues anyway.
If on departure from property, still no CGT as it was her PPR
@OP
Best to ask Mum when she gave it away. Not getting any rent could be indicative.
A bit of a shame that it was not documented at the time though

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Replying to Paul Crowley:
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By David Ex
26th Nov 2021 22:49

Paul Crowley wrote:

Best to ask Mum when she gave it away. Not getting any rent could be indicative.

Still struggling with the idea of her gifting her property interest while being a mortgagee. And also the OP’s client (presumably) claiming relief on 100% of the interest on the joint mortgage.

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Replying to David Ex:
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By Paul Crowley
26th Nov 2021 23:55

+1
Rather be on HMRC side challenging the incorrect postions adopted than on the side trying to defend the "gift"
Did Mum know she made a gift?
I have had similar issues to resolve of husband declaring the tax on a jointly owned property
The only one that was an issue was when a divorce took place
Before the 4 year deadline, but even in the old days the real problem arose from the daft actions of wife's solicitors
Result was less joint money to split
Nose cut face, but solicitor insisted

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Replying to Paul Crowley:
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By gillybean04
27th Nov 2021 00:33

We were told that the son declared it on his return, we weren't told he actually received all the income (we were actually told when "they" started renting the property, "my client" declared it all).

But I am a bit flummoxed why the focus seems to be solely SDLT when there are so many other factors in consideration that can outweigh the SDLT issue.

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Replying to gillybean04:
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By Paul Crowley
27th Nov 2021 01:53

Well I did start with the comment along those lines.
The Dullard is in my opinion trying to give OP a thought process to work with and consider
More tax has probably been paid than would have been paid if it had been done correctly, but HMRC are in no way interested in fairness and equity and it is a bit late to correct the position for all years

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Replying to Paul Crowley:
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By gillybean04
27th Nov 2021 11:27

Sorry, I was responding to the "Does mum know she made a gift" part. To say there's no indication a gift was actually given/the indication is the opposite.

It is for that same reason (there's nothing supporting a gift having taken place) my take on The Dullard's post was that they're suggesting the mother & client should pretend a transfer already took place and create a false document to support that false claim (so they can then make a mortgage application based on that false information).

You get unfair situations in tax all the time unfortunately. But the law didn't cause the costly mistake, just prevents them correcting it for all years. You could say the cause was not obtaining appropriate advice. Almost like accountants offer a valuable service that can help a client avoid liabilities of far greater amounts than their fee.

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Replying to gillybean04:
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By Paul Crowley
27th Nov 2021 16:17

Agree completely
I think the reality is that OP's client is a new client that DIYd for all years to date and has now finally looked to an accountant to fix things
Indeed I am confidend that was the intimation of Lion's post

The second post of the thread
Reinforced by OP stating what the client had done

The disappointment of this is that the client has paid more income tax than the combined tax if it had been done correctly (assuming Mum had some spare personal allowance)

A free one hour consultation with an accountant at the planing stage when the property stopped being the PPR would have sorted the problem on day one

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Replying to gillybean04:
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By The Dullard
27th Nov 2021 20:18

Pretend! How very dare you! :)

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Replying to The Dullard:
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By Paul Crowley
27th Nov 2021 21:40

Righteous indignation is the best start of any defence.

Read Taxation tax cases from latest issue. Only one page.
There was an FTT on a £100 penalty for late filing CIS return. Failed. No surprise
Taxpayers who act for themselves have a fool for a client. Who argues £100 for a justified penalty?
Even someone on minimum wage ought to know better

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By Tax Dragon
29th Nov 2021 02:00

At the very least, it would be worth mother and son talking their situation through with a legal advisor.

Legal advisors tend to be better placed than accountants to understand, comment on and assist with legal matters.

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