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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 6630
Experience:  FCCA FCMA CGMA ACIS
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Thinking about being named on a mortgage with my brother

Customer Question

Thinking about being named on a mortgage with my brother (who has seperated from his partner and needs help getting a mortgage on his own), however I am not sure what the Stamp Duty implications are in such a situation. I am a home owner and his house is worth >500k, so if I pay full stamp duty I believe it will be around 34k! or even stamp duty on a half share would be 12k. Can you shed some light on how it might all work? (I will not be paying him for any share of the property directly, as it is just about getting another name on the deed to help getting the mortgage itsself)
JA: Have you talked to a tax professional about this?
Customer: no I have not I am just trying to get a feel for the situation now
JA: Anything else you want the Accountant to know before I connect you?
Customer: no thank you.
Submitted: 6 days ago.
Category: Tax
Customer: replied 6 days ago.
also - our broad plan would be "get my help getting a mortgage -> improve his own situation -> take the mortgage on his own and get rid of me from the deed", but I am wondering if such a situation would end up A)costing him some sort of extra stamp duty to "buy me out", or B) meaning capital gains tax for me (despite the fact I dont intend to make any money from it)
Expert:  bigduckontax replied 6 days ago.

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question.

There will be a Stamp Duty levy on the mortgage document. However, who pays in the end is up to the pair of you although you are legally liable for your share until the duty is settled.

Customer: replied 6 days ago.
thanks for that. I am trying to get to the bottom of how much the stamp duty will be in this situation (ie he already owns his share, currently 50% and his partner owns 50% - we are buying the partner out and putting me on the mortgage). Are we looking at a new 100% stamp duty to share out between us!? (he naturally paid stamp duty the first time around)
Expert:  bigduckontax replied 6 days ago.

Unfortunately, yes, any change to the mortgage deed can trigger another tranche of the duty.

Customer: replied 6 days ago.
100% of original duty? or only the % being transfered? (ie if I was taking a 50% share off of his partner, are we talking 50% duty?)
Expert:  bigduckontax replied 6 days ago.

Have a look here for full chapter and verse on this matter:

https://manaksolicitors.co.uk/conveyancing/transfer-of-equity-how-it-works/

You are, however, talking of duty on the share being changed.

Customer: replied 6 days ago.
I also have a very dummy / basic question about capital gains tax. If I pay nothing for the property, and receive a 50% share, will I be due to pay CGT on my 250k "gain" when I leave the deed? (I wont be physically receiving any money as I will just be giving up my share, in much the same way I am taking on a share for nothing). really confused / a beginner at these things and looks like I might be exposing myself to huge loses.
Expert:  bigduckontax replied 6 days ago.

Yes, you will.

Customer: replied 6 days ago.
will that be paid only on at the time I come off the mortgage deed at the end of the process?
Expert:  bigduckontax replied 6 days ago.

Every time a mortgage deed is changed there can be a liability to the duty. If this is not paid then the document will be invalid. It was this invalidity and its like which was the cause of the Boston Tea Party and ultimately the American Revolution.

Customer: replied 6 days ago.
you are referring to the capital gains tax being also payable whenever the mortgage deed is changed? or you mean the Stamp Duty?
Expert:  bigduckontax replied 6 days ago.

The Stamp Duty.

Customer: replied 6 days ago.
sorry to confuse - my above query was about the CGT. Since I will in theory take on a 250k (50%) share of this house and not pay a penny, will I need to pay CGT right away on that gain, or only when I come off the deed in the future?
Expert:  bigduckontax replied 6 days ago.

When the property is ultimately disposed of. A cautionary tale: a man bought a flat for his child to live in at uni and ultimately the son remained in residence for years after. When it was finally sold the parent found himself with a 36K CGT bill for a property he had never occupied or enjoyed.

Customer: replied 6 days ago.
what I can't get my head around is my rough liability here though. Legally speaking I imagine I will be taking on a 50% share, but I will be paying nothing for it. When I exit the deed, I will be giving up my 50% share, and receiving nothing for it. Is this not a £0 capital gain?
Expert:  bigduckontax replied 6 days ago.

No, because the gain will be computed using the current market values at the time of the grant and the loss.

Customer: replied 6 days ago.
ok - I can understand that if when I get my 50% share the house is worth 500k, and when I exit lets say it is worth 600k, so do I pay tax on a gain of 100k/2 = 50k (divided by two for my 50% share of gain), or tax on a gain of 600k/2 = 300k? (since I gained my share of the property for £0, and so it is all a "gain")
Expert:  bigduckontax replied 6 days ago.

I am sorry, but I do not follow your argument. What is the real possible sale and acquisition value?

Customer: replied 6 days ago.
I am going to be added to the deed and pay nothing, but in the process aquire 50% of the property, which at that point will be worth 500k. We are then going to (in a year or two) remove me from the deed when my brother takes a mortgage on his own (lets say at this point the property is worth 600k). In these cases I will pay, and receive, nothing, respectively. I am trying to figure out if I pay CGT only on the different between value at point I was added and value and point I was removed, OR, on the entire value (since I gained the property for £0 and so it seems to be the capital I have gained is the difference between £0 and final value, ie entire value)
Expert:  bigduckontax replied 6 days ago.

Right, your liability will be based on a 100K notional gain. From this can be deducted your non cumulative Annual exempt Amount (AEA), currently 12K, leaving 88K. This will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of disposal. A worst case scenario would be a tax bill of a tad under 25K.