Stamp Duty on Transfer of Property Between Spouses

Thousands of couples transfer property between themselves each year, often for tax efficiency purposes. But, did you know that these transfers can also have significant stamp duty implications? The answer is yes, it could, and you need to pay any tax due within 14 days of the transfer.

Here's a quick overview of what you need to know about stamp duty when transferring property between spouses:

• Stamp duty usually applies to property transfers between spouses, as it's payable on the "consideration" for the transfer, including cash and assumed mortgage debt.
• However, you may not have to pay stamp duty if there is no consideration and no change in mortgage liability, or if the transfer is part of a divorce, dissolution, separation, or annulment.
• You might avoid stamp duty if the receiving spouse pays nothing and does not assume any of the outstanding mortgage.

Transferring a half share of property to your spouse: Stamp Duty implications

One of the most common property transfers between spouses occurs when one partner owned the home before the marriage and wishes to share ownership equally. This typically involves transferring a half share of the property to the other spouse, making both partners joint owners of the marital home.

However, transferring a half share doesn't automatically mean you'll avoid stamp duty. Stamp duty land tax (SDLT) may be payable, depending on:

• The property's current market value.
• Whether the spouse receiving the share is a non-UK resident.
• Whether the transfer results in the receiving spouse owning more than one property.

The simplest way to transfer a half share is through a Transfer of Equity. This process generally involves completing a TR1 form, undergoing ID checks, and addressing any mortgage or leasehold considerations.

It's highly recommended to consult with a conveyancing solicitor to handle the legal side of the transfer and register it at the Land Registry. They will also help you understand your stamp duty obligations and submit the form on your behalf.

How to transfer shares in property from husband to wife for tax efficiency

For couples who jointly own a rental property, transferring a portion of their beneficial interest to the spouse in a lower income tax bracket can be a tax-efficient strategy.

Beneficial interest refers to the economic ownership of a property, as opposed to legal title, which is the formal ownership. Think of beneficial interest as the right to enjoy the financial benefits of the property, such as rental income, while legal title is the right to own it on paper.

By transferring beneficial interest, couples can effectively allocate rental income to the spouse in the lower tax bracket, potentially reducing their overall tax liability.

This can be achieved through a deed of assignment, a transfer of equity, or a sale and purchase.

Is CGT payable on transfer of property to spouse?

While there's no Capital Gains Tax (CGT) to pay on property transfers between married couples, you must still complete Form 17 for HMRC.

This can be done through a severance of joint tenancy and a Deed of Trust or Deed of Assignment. This ensures that HMRC is aware of the change in beneficial ownership and can accurately assess your tax liability.

You can transfer up to 100% of the beneficial interest in a property to optimise tax efficiency. However, be aware that if you separate in the future, this is how the property will be divided up in the event of a divorce or dissolution.

Even if you legally owned the property before the marriage, transferring beneficial interest can be seen as a gift or contribution to the marriage, potentially giving your spouse a greater claim to the property during a divorce.

Is there Stamp Duty on transfer of property between spouses?

Stamp duty land tax (SDLT) is payable on the "consideration" exchanged for transferring equity, which includes taking on mortgage debt. This means that if one spouse transfers equity to the other and the receiving spouse assumes a portion of the mortgage, SDLT may be payable.

Even if no cash is paid directly, one spouse transferring equity to the other means the receiving spouse takes on a portion of the existing mortgage, triggering SDLT liability. For example, if you transfer 50% of your property to your spouse, and they also assume 50% of the outstanding mortgage, this will be a consideration, and SDLT may be payable.

The amount of SDLT due is calculated based on the value of the share of the property being transferred and the amount of mortgage debt assumed. It's also important to note that the SDLT rates and any applicable exemptions or reliefs can vary.

Stamp Duty on second properties for married couples: higher rates and reliefs

Transfers of property between spouses or civil partners who are living together are usually exempt from the higher rate of Stamp Duty Land Tax (SDLT). This is a significant benefit, as the higher rate can add a substantial cost to a property purchase.

However, there's a crucial caveat: If you jointly own the property with someone other than your spouse or civil partner, the higher rate of SDLT will apply to the transfer. For example, if you and your spouse co-own property with a business partner, and you transfer your share to your spouse, the higher rate may apply.

You may be eligible for a rebate on the additional rate of SDLT if you sell your previous property within 36 months of completing the transfer. This is something to discuss with your conveyancing solicitor, as the rules surrounding these rebates can be complex.

We can help you understand the SDLT implications for couples (same-sex and opposite-sex) who want to transfer equity in a property to joint ownership, particularly when moving from a sole ownership structure. Contact us for expert advice.

Stamp Duty exemptions for transfers between spouses

You generally do not pay Stamp Duty Land Tax (SDLT) if the transfer is made as part of a formal agreement or court order related to these circumstances.

Specifically, this exemption applies if you are:

• Divorcing.
• Dissolving a civil partnership.
• Annulling your marriage.
• Legally separating.

In these cases, there’s no need to tell HMRC about the transfer, even if the value is more than the usual Stamp Duty Land Tax threshold.

However, this exemption applies only to transfers made as part of a formal agreement or court order. It does not apply to informal property transfers between spouses who are simply experiencing relationship difficulties but are not legally separated or pursuing divorce/dissolution.

What stamp duty is payable when transferring an interest in a jointly owned property?

As defined in the Finance Act 2003, Schedule 4, consideration includes not only cash payments but also the assumption or release of debt, such as a mortgage.

In simple terms, consideration is anything of value exchanged for the property interest, including money and assumed debt.

Consideration can take various forms, including cash, the giving of goods (e.g., a personal possession in exchange for the property), providing works or services, release from a debt, and transfer of a debt, including the balance of an outstanding mortgage.

To calculate the total consideration, you add any cash or other payments made for the share of the property being transferred to the amount of mortgage debt the new owner assumes. If this total consideration exceeds the current SDLT threshold, stamp duty is payable at the prevailing rate.

Example: Ian and Jane jointly own a property valued at £300,000 with a £275,000 existing mortgage. Ian transfers 99% of the beneficial interest to Jane, with Jane assuming 99% of the mortgage debt.

Even if Jane pays Ian no money directly, SDLT is likely payable on the 99% of the existing debt she assumes (£272,250), as this is considered part of the consideration. This is a simplified example, and actual calculations can be more complex, so it's best to seek professional advice.

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