We are acting for a married client who owns x7 BTL properties, all with mortgages, all owned as TIC and not via Limited Companies. Sadly W has been diagnosed with terminal cancer. They want to sell all the properties but this will create a sizeable CGT liability.
The plan is therefore to transfer all but 1% of H’s share of each property to W via DOT with the properties left to H in her Will. He will then be able to sell them after her death and benefit from the CGT uplift.
My queries are in regards to SDLT. I understand SDLT is generally due on any chargeable consideration (including the release of a debt) however my understanding is that there is only an SDLT charge where the consideration exceeds £40,000. For all of the BTL properties, H’s share of the mortgage that would be transferred to W is less than this amount in all cases. Is this correct as I have received conflicting advice that the £40,000 threshold only applies to the higher rates of SDLT applicable to additional properties, and is not applicable here as the properties are being transferred to W?
My related query that I’ve also received conflicting advice on is the property transfer would be considered a ‘linked transaction’ and therefore the total mortgage value over the whole BTL portfolio would be considered as the sales consideration for SDLT.
Could anyone please clarify what the position would be regarding SDLT if the client went ahead as planned?
I think probably this is a slightly ‘grey’ area but I will give you my opinion.
W and H are each presumably already jointly and severally liable for the full amount of the mortgages.
If a unilateral deed of gift / assignment / whatever is entered into by W in favour of H then I cannot see how that gives rise to an SDLT charge since H is not providing any consideration.
I think probably it is right that W retains a 1% share. There is a risk (very small) of breaching the mortgage conditions by doing this (you should check).
If that is right then your linked transaction question is irrelevant.
The first point to make is that a transfer to a spouse in precisely these circumstances will not be counteracted for CGT under the GAAR: Part D example D19
It must be assumed to be a “linked transaction”. s108 FA 2003 refers to a “scheme, arrangement or series of transactions”. None of these terms is defined, although s75A has its own definition of “scheme”. Elsewhere in tax legislation it is defined to include an “understanding” and none of the terms need be legally binding. That extended definition is arguably not relevant here precisely because so deliberately employed elsewhere. The worst view is that any consideration is aggregated for charging rates. Higher rates may well apply: SDLTM09766. MDR would be available until repealed after 31 May 2024
The main issue is whether the existence of mortgage debts charged on the land give rise to consideration within Sch 4 para 8. Para 8(1) is presumably not in point as (critical point per each debt contract) presumably the debt obligations are joint and several so the gift will not release either party from liability. The contracts must also not trigger repayment in consequence of what is planned!
Para 8(2) will not be engaged unless “the rights or liabilities in relation to that debt of any party to the transaction are changed as a result of or in connection with the transaction”. They need not be.
Each TIC owns the “equity of redemption” in each property, that is the equitable title to a share of each property subject to the debt charged on it. SDLTM04040A is highly instructive, particularly as regards Example 2. “Assuming V is released from the debt or P agrees to indemnify V there is an assumption of debt by P”. Neither need occur.
So if H transfers his equity of redemption to W and H is not released from his debt nor does W indemnify him there is no consideration. Of course H takes the risk that W/her PRs will not discharge the mortgages and he will then be liable to pay (joint and several debtor) without access to the properties save under W’s will. She should make that as a first step; as a Will speaks from death and if she describes the properties precisely the Will can validly dispose of them even though acquired after it was signed (provided she does not change it before death and it is not successfully challenged, for formal invalidity, mental capacity or undue influence).
The second step is a Declaration of Trust by H and W changing the proportions to 1% and 99% of equitable ownership. No need to involve HMLR if both spouses are registered owners with a Form A restriction, as they should be as TICs. In fact the equitable interest could be 100% to W but that should be registered and the Form A removed, although if that is not done the desired CGT outcome is not affected and the death of W will necessitate a change in the Register eventually.
Thank you so much to both Paul and Jack for taking the time to give your thoughts and opinions. I genuinely appreciate the details you have provided and given me the clarity I was seeking.