Joint Mortgage Sole Proprietor: Savings on Stamp Duty

When using a Joint Mortgage Sole Proprietor product, the goal is normally to help your child with their affordability to get the mortgage but avoid being named on the title of the property, often due to concerns about Stamp Duty.

This is most likely because you own another property and don't want to pay second home stamp duty tax; it could even be because you want to protect your first-time buyer status since you want to buy your own property in the future.

There are complications with Stamp Duty for anyone on the mortgage, but not named on the legal title:

• Additional Rate of Stamp Duty could be applied (5% above the standard rates).
• First Time Buyer status could be lost.

What starts as a helping hand, could be seen as you as an owner of the property. HM Revenue and Customs (HMRC) have clear guidance on how to prove you have no beneficial interest in the property , so if you want to avoid a hefty tax bill for getting it wrong, read on.

Scenario 1: Stamp Duty and Beneficial Interest in JMSP

This scenario is particularly relevant for parents helping their children or siblings helping a first-time buyer sibling. If you are on the mortgage but not the legal title, and you have any future entitlement to the property, HMRC may consider you a joint purchaser.

Here are some common examples:

• Parents, who own another property, are jointly on the mortgage with their daughter who is going to be the sole legal owner of the property. The parents are investing a large sum of money to help fund the deposit and they want to be repaid their deposit upon the sale of the property.
• A brother is jointly on the mortgage with his sister, who is a first-time buyer and will be the sole legal owner. The brother owns another property and wants to help his sister but also wants to retain his first-time buyer status for a future purchase.
• A boyfriend is jointly on the mortgage, but not a legal owner of a property which his partner is the sole legal owner of and he wants to invest in the property. The boyfriend doesn't want to pay the second home stamp duty because he owns an interest in another property.

HM Revenue Customs - Stamp Duty Land Tax Manual - SDLT - higher rates for additional dwellings: joint purchasers states:

"Where an individual (who is not a spouse or civil partner of another purchaser) is one of the purchasers of a dwelling but they will have absolutely no beneficial interest in the property, they will not be treated as a joint purchaser of that dwelling. This would have to be evidenced in writing. Any future entitlement to capital proceeds from the sale of the property, to income or to occupy the property would mean that they do have a beneficial interest."

Applying HMRC's definition to our examples

In our examples above, the parties on the mortgage own another property which they aren't going to sell but are looking to be repaid "capital proceeds from the sale of the property". Without written evidence, such as a deed, HMRC could claim you are a joint purchaser.

If you contribute money towards the purchase of the property – for example, by helping with the deposit or making mortgage payments – even though you won't be named as a legal owner on the title, the law might assume you have a financial stake or ownership interest in the property.

This is what's meant by a 'resulting or constructive trust'. Unless you have a formal agreement in place, like a Deed of Trust, that clearly states you have no beneficial interest despite your financial contributions, HMRC could see you as having an ownership share.

If the parties on the mortgage want a beneficial interest in the property so they can be repaid money on sale, without selling their main residence before buying, then the purchase transaction will attract Second Home Stamp Duty of 5% of the property value.

It is also noted that for the joint purchasers to prove to HMRC that they have zero beneficial interest in the property they need to "evidence this in writing".

A common method for doing this is an executed Deed of Trust stating that the parties on the mortgage are not legal owners and have a zero beneficial interest in the property.

Another complication arises though if you intend to live in the property and we examine this in Scenario 2.

Scenario 2: Occupation Rights and Stamp Duty on Joint Mortgages

Even if a joint borrower isn't on the legal title, HMRC considers the right to occupy the property as a beneficial interest. As highlighted in the example of the boyfriend and partner buying together, simply intending to live in the property has Stamp Duty implications.

"Any future entitlement to capital proceeds from the sale of the property, to income or to occupy the property would mean that they do have a beneficial interest."

Therefore, if the boyfriend plans to live with his partner, he must evidence in writing (typically through a Deed of Trust) that he has "no future entitlement....to occupy the property". Without this, the intention to occupy gives rise to a beneficial interest, and second home stamp duty would apply.

Scenario 3: Stamp Duty on Rental Income from Jointly Mortgaged property

Receiving rental income from the property by any party on the mortgage, but not on the legal title, also constitutes a beneficial interest, making second home stamp duty payable.

"Any future entitlement to capital proceeds from the sale of the property, to income or to occupy the property would mean that they do have a beneficial interest."

Scenario 4: Stamp Duty rules for spouses and civil partners in JMSP arrangements

If the party who is jointly on the mortgage but not on the legal title is a spouse or a civil partner, and they own another property that they aren't selling to buy the new property then second home stamp duty is payable.

HM Revenue Customs - Stamp Duty Land Tax Manual - SDLT - higher rates for additional dwellings: purchasers with a spouse or civil partner states:

"Where an individual with a spouse or civil partner purchases an interest in a dwelling and their spouse or civil partner is not a joint purchaser, the spouse or civil partner will be treated as a joint purchaser in respect of the transaction [Para 9].

This means that where a purchaser is married or in a civil partnership, if Conditions A to D are met by either the purchaser or their spouse or civil partner, the transaction will be a higher rates transaction."