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TonyTax
TonyTax, Tax Consultant
Category: Tax
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I got divorced in March this year. Me and my ex-husband have

Resolved Question:

I got divorced in March this year. Me and my ex-husband have joint mortgage. We agreed to transfer the equity of the mortage to our adult children for my benefit and I will stay in the property to live with my children. My husband moved out of the property and he will receive £20 000 to pay him off.This was confirmed in writing in the court order. My children had a mortgage offer from one of the banks. Do they have to pay the stamp duty or is this exemption? If they have to pay how much they would have to pay? The purchase price of the property is £300 000.
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

You mention the "equity of the mortgage". What do you mean by that exactly? What was the original purchase price of the property? What is it worth now? What is the current level of the mortgage? When did you and your former husband separate? Will the property be put into your adult children's names? Will your name be on the title deeds? Who will pay the mortgage repayments?
Customer: replied 2 years ago.

With the equity I mean the whole mortgage and the property will be transferred onto the children's names only. The original purchase of the property was £250.000. The current value of the property is £300 000. The current level of the mortgage (outstanding mortgage) is £226.000. Me and my husband got decree absolute on 9 March 2015. Yes, the property will be put into my adult children's names ONLY. Mine and my ex-husband's names will not be on the property but I will continue to live in the property according to the court order (it said "for my benefit). My name will not be on title deeds. I will continue paying the mortgage but the money will go from my son's account, as I will give him money for it.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer. It will take a while.
Customer: replied 2 years ago.

Please could you tell me when can I expect your answer approximately, at least? I really need it urgently.

Thank you

Expert:  TonyTax replied 2 years ago.
It will be today, probably in the next 30 minutes.
Customer: replied 2 years ago.

Excellent, many thanks

Expert:  TonyTax replied 2 years ago.
Hi again.

In a regular situation, the stamp duty on a purchase of a £300,000 residential property would be £5,000 (£125,000 x 0% + £125,000 x 2% + £50,000 x 5%). See the calculator here.

On the face of it, you are selling your home to your children for £300,000 with the new mortgage paying off the old one. As your children will be legally responsible for the mortgage payments, notwithstanding the fact that you are paying it, a transfer of value has occurred (legal responsibility for the mortgage) and that gives rise to a stamp duty liability. The property will also be transferred from you to your children.

What concerns me is the phrase "for my benefit". Are you giving up ownership of the property forever? If not, your solicitor may be able to argue that there is no sale and no stamp duty. If your children will retain ownership benefits, then there is a sale and stamp duty arises. I would have expected the solicitor to have an idea of the stamp duty position and ways around it, if any. My own view is that stamp duty of £5,000 will be payable.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 2 years ago.
There are some useful notes on stamp duty here.
Customer: replied 2 years ago.

Thank you

Here is exact statement from the court order:

"The husband, the wife and the children of the family agree that the former matrimonial home shall be transferred from the joint names of the husband and wife into the joint names of the children of the family for them to hold the beneficial interest in the former matrimonial home on Trust for the wife for her own use absolutely."

Does this statement from the court order exempt us from paying the stamp duty?

Many thanks

Expert:  TonyTax replied 2 years ago.
If the property had been transferred to you from your husband as part of the divorce, there would have been no stamp duty as it says under the heading "Transferring property on divorce, separation or the end of a civil partnership" here.

Given that there will be a legal transfer and your children will be responsible for the mortgage and that , I believe stamp duty is payable. Had the property been mortgage free there would be nop stamp duty. I'd be interested to know what event will bring the trust to an end and what happens to the property at that point.
Customer: replied 2 years ago.

Thank you

I am sorry but I do not understand your last sentence. Please explain it to me.

Many thanks

Expert:  TonyTax replied 2 years ago.
What happens to the property when you die? Will it still be mentioned in your will as your asset because after the transfer to your children, as far as I can see you will no longer own it in which case it has been sold for £300,000 which incurs stamp duty, albeit with you retaining the right to live there for as long as you wish to.
Customer: replied 2 years ago.

Thank you for your clarification. It seems that we will have to pay stamp duty. If we can't pay £5000 can it be added to the mortgage and pay it in monthly instalments? My divorce cost me a lot and I have to pay my ex husband 20 000 pounds, so this would be very difficult for us to pay.

Many thanks

Expert:  TonyTax replied 2 years ago.
Stamp Duty cannot be paid in instalments I'm afraid.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank you for your advice. As you suggested in your previous email,I am going to arrange a meeting with my solicitor this week and will seek further advice.

Expert:  TonyTax replied 2 years ago.
Thanks and good luck.
Customer: replied 2 years ago.

Thank you