SDLT exchange or part gift

Not my subject but I have an SDLT query
Clients, who are parents and son, had originally intended to exchange properties with difference in value gifted from parents. However the SDLT position on an exchange Is different from the alternative of a gift of one property only, with part purchase by son despite HMRC not normally charging SDLT on any gifted element.
This is because the gift element is not ‘chargeable consideration‘ for SDLT purposes, although, under a deed of exchange, the chargeable consideration is defined (FA 2003 Schedule 4 para 5 and sub para 3(A) as the market value of the acquisition. Thus, if one house was say £2mill and other was £1.2 mill, the gift element would be £800,000 but, if exchanged, then, despite this, SDLT would be payable on £2mill by son, despite only £1.2mill consideration and on £1.2mill by parents i.e. £2mill deemed to have been ‘paid’, less gifted element of £800,000 Thus, on an exchange, the gifted element of £800,000 mill is taxed in relation to the son’s acquisition
If, instead, parents merely transferred their property to son for £1.2mill, the purchase price element of £1.2 mill would be the chargeable consideration and the other £800,000 would be the gift, so not liable to SDLT or have I missed something?
Michael Jepson
M J Consultants

Hi Micheal,

Not sure I follow exactly. If each party gifts the property.

Son gifts his property to mom and dad.
Mom and dad gifts their property to son.

On the basis no mortgages on the properties no SDLT due.

Even though the son is £800,000 up on the deal.

CGT wont be an issuse as they’re claiming private residence relief?

My I understanding based on: -

Richard Bishop

I was pointing out that,if the properties are exchanged by deed of exchange, even with a gift element, SDLT is charged on the respective market values, whereas if one property was sold at an undervalue, then only the actual chargeable consideration would be liable
I would think that, in your example, HMRC would claim that they are linked transactions for SDLT purposes (and SDLT is self assessed) - see note below - and that the transaction was effectively an exchange or that SDLT is payable on each market value, but also , if both are expressed as gifts, there is not only up to 7 years exposure for IHT on both sides, but possibly an argument that there has been a gift with reservation, possibly even both ways?

Michael Jepson

It always seems prudent to me to adopt advisedly a particular view of the prospective analysis of a transaction or series. It may turn out to be a view that a judge or HMRC ultimately disagrees with but to go ahead simply accepting an inherent uncertainty seems risky and a potential costs disaster. The key point seems to be whether an alternative structure (separate mutual gifts) may escape the SDLT treatment of an exchange. So will the evidence demonstrate that the parties genuinely intended such gifts i.e that there is no surreptitious and indeed sinister consideration lurking about which, on a worst view, might cause a person to be told that they “do not to have to say anything but it may harm their defence if later they do not mention…”

An agreement to make mutual gifts, on the basis that A will not give unless B agrees to do so as well, seems remarkably like an exchange to me. Without the element of agreement, and no cogent evidence to the contrary, the different SDLT analysis may well succeed.

Jack Harper