Stamp Duty Land tax (SDLT) Technical News (formerly Newsletter) Issue 3 - September 2006

Comparative SDLT treatment of lease extensions and renewals

An article on this subject was included within issue 1 (PDF 200K).

Practitioners should now read the revised SDLT lease manual (which will be available shortly on our website) to obtain more up-to-date information.

Consideration

The amount of consideration that should be shown at question 10 on the SDLT1 land transaction return is the consideration given for the subject-matter of the transaction. In most cases this will be the amount shown on the transfer form (TR1) or lease, as the case may be, although this may require adjustment:

• if the figure does not include the price paid for fixtures,
• or if the amount paid for chattels does not represent a just and reasonable apportionment,
• or if the buyer has paid seller's costs (other than landlord's reasonable costs on the grant or enfranchisement of a lease).

If the amount actually paid on completion is less than the amount shown on the transfer document (TR1) or lease this would not normally affect the SDLT payable, since the figure entered on the transfer document (TR1) or lease, to the extent it is not paid on completion, is acknowledgement of a debt. In addition if this is the figure stated in the contract there is a contractual promise to pay this figure.

SDLT implications of some common land transactions associated with marriage, divorce and civil partnership

We have recently received several enquiries on the SDLT implications of property transfers on marriage, divorce and civil partnerships.

Where a couple are getting married / entering into a civil partnership / setting up home together and want to transfer one partner’s property into their joint names.

There is no SDLT relief for transactions in connection with marriage or entering into a civil partnership.

SDLT is charged where an interest in land is transferred for consideration. Consideration will include:

• any cash payment and
• any assumption of liability to pay a mortgage. The liability assumed is taken to be a proportion of the outstanding mortgage corresponding to the proportion of the share of the property which is acquired.

Example

A house is valued at £180,000. The transferring partner has equity of £90,000 and there is an outstanding mortgage of £90,000.

The transferee partner pays a cash sum equivalent to half the equity and acquires a 50% share in the property.

The consideration in this case will be the cash payment (£45,000) plus 50% of the outstanding mortgage (£45,000) = £90,000. As this is below the stamp duty land tax threshold of £125,000 there will be no tax to pay.

Although there is no tax to pay, details of the transaction must be returned in a land transaction return.

(Note: for this purpose joint tenants are treated as each owning a 50% share in the property.)

Where a couple are divorcing / dissolving a civil partnership / splitting up and want to transfer a property from their joint names into the sole ownership of one partner

A transaction of this kind will be exempt from SDLT if it is effected in pursuance of a court order or an agreement between the parties in connection with divorce, nullity of marriage or judicial separation, or the dissolution of a civil partnership (Schedule 3 Finance Act 2003).

In this case the transaction can be self-certified to the Land Registry using form SDLT 60 and no land transaction return is needed.

Otherwise, SDLT will be charged, based on the consideration given for the transfer including:

• any cash payment and
• any assumption of liability to pay a mortgage. The liability assumed is taken to be a proportion of the outstanding mortgage corresponding to the proportion of the share of the property which is acquired.

Example

A house is valued at £350,000. The partners have equity of £250,000 and there is an outstanding mortgage of £100,000.

The transferee partner pays a cash sum equivalent to 50% of the equity and acquires sole ownership of the property.

The consideration in this case will be the cash payment (£125,000) plus 50% of the outstanding mortgage (£50,000) = £175,000. This is above the stamp duty land tax threshold of £125,000 and the tax due on the consideration at 1% will be £1,750.

Details of the transaction must be returned in a land transaction return in the usual way.