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Peter, Chartered Tax Advisor
Category: Tax
Satisfied Customers: 153
Experience:  Director at PDS Tax Limited
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I currently own a home with my parents its in 3 names mine

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i currently own a home with my parents its in 3 names mine and my mum and dads. I own 50% and my parents own 50%. My wife lives there also but is not on the deeds or mortgage. My parents are moving out and i am adding my wife to the deeds and taking them off along with transferring mortgage to mine and my wifes names. How much SDLT do i need to pay?
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Hi, my name is ***** ***** I am a UK Chartered Tax Advisor. Please can you advise who is liable to repay the mortgage: is it just you currently or you and your parents? Secondly please can you let me know how much of the mortgage is outstanding?

Customer: replied 7 months ago.
The mortgage is in all 3 names, both parents and mine. The outstanding mortgage amount is approximately £138,000
Customer: replied 7 months ago.
Value of the house is £565,000

Thank you. For SDLT purposes you as the buyer are subject to SDLT on the amount of 'chargeable consideration'. In the case of a gift with no mortgage the chargeable consideration is zero, but where there is a mortgage the assumption of liability for existing debt is the chargeable consideration for SDLT purposes.

As you already own 50% of the property the maximum that the chargeable consideration can be is £69,000 i.e. 50%. This should fall within the SDLT nil rate band of £125,000 so no SDLT would be payable.

You need to watch out for CGT though. As your parents are gifting a property they are deemed to be selling their half of the property to you at the market value rather than any amount you pay for it. The gain after the deduction of annual CGT exemptions may be subject to CGT at up to 28%.

If you have any follow up questions, I am happy to help. Otherwise please consider a 5 star rating for my answer.

Kind regards, Peter

Customer: replied 7 months ago.
Thanks Peter so in regards ***** ***** The house was purchased 2 years ago for £565,000 and it was just valued by the mortgage lenders few days ago at exactly the same. So CGT shouldnt be applicable in this instance?? Ideally i wanted to avoid them gifting me their share as this will impact their inheritance tax allowance at a later date. I am looking to take the mortgage on and pay them approx 100-140k cash depending what the highest amount i can give them and avoid SDLT. Any advice on the best merhod to minimise tax on sll fronts?Thanks Peter

Yes, if the house was purchased at £565,000 and is currently valued at the same then no CGT will be applicable as there is no gain on the transaction.

If you pay them e.g. £140,000 for their share of the property, the gift element would be £142,500 (£565,000/2 - £140,000). This is a potentially exempt transfer which would fall within their inheritance tax estate if they were to die within 7 years of the date of the transfer.

For your wife assuming 50% of the debt on the property (assuming you will hold the property 50:50) the chargeable consideration for her as buyer will be £69,000 i.e. within the nil rate band. I assume this will be her only property and not a 2nd home?

CGT, SDLT and IHT are the only taxes in question directly related to this transaction.

Kind regards, Peter

Customer: replied 7 months ago.
will be my wifes first and only home. Wouldnt the gift element be less? As the outstanding mortgage of £69,000 they owe will be taken on by my wife so they will be gifting £142,500-£69,000= £73,500..
Customer: replied 7 months ago.
Also just to clarify, if they die after 7 years its exempt from IHT or before 7 years?

No, for IHT purposes the amount of the gift is the value transferred i.e. £565,000/2 less any amount your wife pays for the gift.

Customer: replied 7 months ago.
Ok so £142,500 would come off their joint IHT free allowance of £750,000?

For IHT purposes the gift will be wholly outside your parent's estate after 7 years. From the third year, taper relief applies so that not all of the gift is subject to inheritance tax in accordance with the length of time from the date the gift is made.

For the first 3 years 100% of the value of the gift is within their estate.

The rates of taper relief are attached.

Ok so £142,500 would come off their joint IHT free allowance of £750,000?

Yes that's correct

Although two nil rate band are £650,000 (£325,000 x 2)

Peter and other Tax Specialists are ready to help you
Customer: replied 7 months ago.
Oh wow thats extremely informative Peter, didnt realise that its wholly outside the estate after 7 years so their full IHT free allowance is still intact. Sorry i meant £650k not 750k. Thank you so much for your help Peter. You've been a great help!