Home › Forums › Patrick Cannon › Can SDLT be avoided on the transfer of a property subject to mortgage?
- This topic has 3 replies, 1 voice, and was last updated 15th April 2018 at 10:32 am by Patrick Cannon.
Where for example, a donor wishes to transfer a mortgaged property into the joint names of himself and his partner/spouse, I understand that the assumption of a proportion of the mortgage debt by the donee gives rise to a SDLT charge. However, where the donor expressly states in a declaration of trust that he will continue to pay all monthly and other payments for which he is liable under the registered charge, I gather no SDLT charge should then arise on the transaction. However, in this situation where the donor retains responsibility for the mortgage, does this effectively mean that on a later sale of the property the donor must give the donee the appropriate proportion of the sale proceeds with he the donor, having to pay all of the mortgage debt out of his share of the sale proceeds? So, if say the donor signed a declaration of trust stating that henceforth, he would hold a property on trust for him and his partner as to 50% each and there was a mortgage for which he retains responsibility so as to avoid SDLT, then if on a later sale the property is sold for say £1 million and the outstanding mortgage is say £600,000.00, the donee partner would be entitled to £500,000.00 and the donor would effectively receive nothing and would in fact owe £100,000 to the donee where the mortgage had been redeemed in full on the sale? If this is the case, it seems that any donor wishing to avoid SDLT in this way would need to think very carefully about whether he wanted to take the risk of retaining full responsibility for the mortgage.
Is this the correct position please?
Many thanksPatrick CannonGuest
The wording of the declaration of gift/trust will determine the position but in principle the donee can take his or her interest in the property subject to the existing charge but without assuming any personal liability for it and so on any subsequent sale would receive only their share of the equity after the charge had been repaid.
Lender’s consent should be obtained and if it is willing to grant consent on these terms then it is likely to require some form of consent to the charge from the donee and the wording of this document will need to be carefully drafted to avoid an SDLT charge on the amount of the loan.William ChalkGuest
Thank you very much Patrick. I can see this is a tricky area.
Is there a practitioner text on SDLT that covers this area and which you might recommend please?Patrick CannonGuest
Well there is my book Tolley’s Stamp Taxes 2015/16 at 3.1 which discusses debt assumption issues. A new edition for 2016/17 is due to be published any day now so if you are thinking of buying it I suggest you wait for the new edition.