Stamp Duty Land Tax Query

Stamp Duty Land Tax Query

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A father (age approx 70) wants to raise some capital from the equity in his house. the house is valued at £250,000.

It has been suggested that he gifts £160,000 of this value to his son; the son then obtains a mortgage for £90,000 which is then paid to the father. The house is transferred into the son's name and the son owns the house in its entirety,

The question is whether the son has to pay SDLT on the value of the property, ie £250,000 or, because the actual monetary consideration is £90,000, and below the stamp duty threshold, there is no SDLT to pay?

The son will then rent out the property, in all probability back to his father. Will this have any effect on the SDLT?

Thanks in advance for any thoughts on this.

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By Justin Bryant
01st Aug 2013 18:41

There should be no SDLT

Per the link below, the chargeable consideration seems to be £122.4k (£90k + ((90k/250k) x £90k)) and thus below the £125k 1% SDLT threshold.

If possible, it would be simpler to make an outright (mortgage free) gift first and then do the mortgage, followed by the £90k payment.

The rent shouldn’t affect this analysis.

http://www.hmrc.gov.uk/manuals/sdltmanual/sdltm04040.htm

 

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By Wiganer Elaine
02nd Aug 2013 10:01

Justin

Thanks for this - SDLT for me is definitely something I am not overly comfortable with!

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By geofflusk
05th Aug 2013 16:46

HAVE YOU CONSIDERED OTHER TAXES

I suspect the real potential problems lie in other taxes. Unless the father pays a full market rent then the Gift With Reservation and Pre-Owned assets provisions may apply for IHT/IT. In addition the son will have an IT liability upon the rental profit and the benefit of PPR will be lost for CGT. Whilst not a great supporter, have you looked at equity release schemes as this is effectively what is being proposed between the family members.

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By Wiganer Elaine
06th Aug 2013 12:47

Other Taxes

They have looked at equity release and decided against it. They are also aware of the "other tax" implications.

Thanks

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