This question feels like it should have an obvious answer, as it must come up all the time, but here goes.
Deceased dies intestate with their property (the main estate asset) subject to a mortgage. There is one beneficiary under the intestacy rules, and the beneficiary wishes to discharge the deceased’s mortgage with a mortgage of her own on the property so the property can be transferred to her name.
My view is that this would be considered assuming the deceased’s secured debt, and therefore exempt from SDLT under FA03/Sched3/Para 3A.
However, there is some internal disagreement in the office as to whether this constitutes assuming the deceased’s debt, as the beneficiary is getting a new mortgage in her own name to enable the property to be assented to her.
To put really simply, does ‘assuming debt’ include getting a new mortgage to discharge the existing mortgage.
I believe the decision in Passant v. Jackson (1984) might be informative.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Para 3A(4) Sch 3 FA 2003 defines ‘secured debt’ as a ‘debt that immediately after the death of the deceased person, is secured on the property’. Therefore, I believe a re-mortgage does not meet the exemption in Para 3A.
However, I believe if the property is beneficially assented to the beneficiary along with the deceased’s mortgage (so the beneficiary assumes the debt), and then later decides to re-mortgage, this should not cause any SDLT to apply.
Ihsan Ali
I Will Solicitors Ltd
Presumably she is raising money on mortgage so that the one raised by the deceased can be paid off. You cannot assume liability for a debt by paying it off.
There is no general definition of in para 8(1) Sch 4 FA 2003 but it was corrected or clarified, which one it is may matter, by FA 2004 inserting para 8(1A) and"(b) 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" has caused confusion.
If the PRs transfer the property subject to the mortgage they are at risk if the asset needs to be sold to pay debts. A mortgage may list death of the borrower as an event of default crystallising earlier repayment date after a demand to pay. If they do so nonetheless and the legatee pays off the debt plus interest is this a " change" of “rights and liabilities”. My argument is that there is no change but rather an exercise of rights by the mortgagee. An indemnity by the legatee of the PRs is an assumption: SDLTM04040 “personal covenant”.
But para 3A Sch 3 grants an exemption to a gift by will where the legatee assumes debt secured on the asset to which he is entitled on its transfer, if there is no other consideration like an indemnity. SDLTM is silent but in online Guidance HMRC say at
https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property#gif
"If you’re left land or property in a will
If you get land or property under the terms of a will, there’s no need to tell HMRC and you will not pay Stamp Duty Land Tax. This applies even if you take on an outstanding mortgage on the property on the date the person died. This is on condition that no other chargeable consideration is given."
Raising a mortgage to pay off the assumed debt is surely not going to offend. s75A is not engaged as there is one V and one P. It would be perverse to count the new mortgage as one of a number of transactions but HMRC can be such at times.
There is no example in the Guidance but the other examples, particularly about lifetime gifts, indicate that the transaction would be chargeable under para 8 Sch 4 if it were not exempt under para3A Sch 3.
Jack Harper