I want to transfer 1% of my property in Leeds to my husband and attain a 50:50 split on the rental income. However, the property has a mortgage of £400,000. I was under the assumption that stamp duty land tax (SDLT) would be due as we would be liable equally to the mortgage company and not a 1:99 split on the mortgage. Is this correct? If it's just 1% of mortgage transferred would we still get 50% deduction for mortgage interest on rental profits?
Arthur Weller replies:
Firstly, in order to give a 50:50 split for income tax rules, it is not enough to be beneficially jointly owned 99:1, but the property also has to be put into joint names (e.g. see HMRC’s Trusts manual at www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9810
). Secondly, SDLT is dependent on the amount of mortgage transferred. So, if you become jointly liable to the £400,000 mortgage then there would be SDLT on £200,000 (see HMRC’s Stamp Duty Land Tax manual at www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00330a
at Example 3). However, if you can get the mortgage company to agree to a 99:1 split for the mortgage, you do not have the SDLT liability, but you can still get the 50:50 split for income tax purposes.
This question was first printed in Business Tax Insider in August 2019.