SDLT where mortgage debt assumed

FA03/Sched3/Para 3A (relating to transactions exempt from charge to SDLT) states:

(1) The acquisition of property by a person in or towards satisfaction of his entitlement under or in relation to the will of a deceased person, or on the intestacy of a deceased person, is exempt from charge.

Sub-para (2) provides that this does not apply if any consideration is given other than ‘the assumption of secured debt’.

My question concerns a situation where a beneficiary is entitled to an estate where virtually the sole asset is a property subject to a mortgage and wishes to acquire the property intact rather than the executors selling the property to pay off the mortgage.

As I understand it, there is no reason in law why the property could not be transferred subject to the existing mortgage with the beneficiary assuming the position of mortgagor and indemnifying the executors (if the lender does not release them). The consent of the lender would be required (a) in order to register the transfer of title and (b) in all probability under the terms of the mortgage.

This would appear to meet the criteria for exemption. However the problem is that, in my experience, the lender will not agree to a transfer subject to an existing charge, but requires a re-mortgage. If the beneficiary raises a mortgage in order to discharge the existing mortgage, contemporaneously with the transfer by assent to him of the property, will this still meet the criterion for '‘the assumption of a secured debt’ and be eligible for the exemption from SDLT?

In this case the beneficiary also proposes a Deed of Variation so that the property passes to a limited company (see your thread on DoVs in favour of a limited company). Para 4 of Schedule 3 states that a transaction subsequent to such a variation also qualifies for exemption, but does not include the exception of assumption of a debt. However a note in the HMRC SDLT Internal Manual states that ‘consideration does not include any secured debt assumed’.

Does anyone have a view on whether it counts as assuming a secured debt if this can in practice only be effected by remortgage?

Hilary Gallup
aa Chartered Accountants

I suspect that the requirement to remortgage will cause the exemption contained in FA 2003 Sch 3 para 3A not to apply. Para 3A(4) defines “secured debt” as “debt that immediately after the death of the deceased person, is secured on the property”.

Where a remortgage is effected this will not be debt that was assumed and secured on the property immediately after death.

Unlike for IHT and CGT there is of course no reading back for SDLT.

FA 2003 Sch 3 para 4 provides exemption but only where the only accepted “consideration” is that of another variation. Remortgaging, would seem to destroy the exemption.

Malcolm Finney

Thanks Malcolm for your comments.

Re DoV the point about there being no reading back for SDLT is noted. Therefore, unlike IHT and CGT, if any transfer to the original beneficiary has taken place, the SDLT consequences of this (whatever they may be) will not be ‘reversed’ by the DoV.

Secondly if it is correct that the exemption for SDLT in Para 3A does not apply where there is a remortgage, then this must also apply to Para 4. My point was that, although para 4 does not replicate the statement in Para 3A about the assumption of a ‘secured debt’, the note in the HMRC Manual indicates that the same reasoning will apply. Although this is not law, it is an indication of how HMRC would view the point.

This does not of course assist with the point about a remortgage.

Hilary Gallup
aa Chartered Accountants

I assume you are referring to HMRC SDLT Manual para SDLTM 00560 which states:

“A transaction following a person’s death that varies a disposition is ……exempt from charge if the following conditions are me
· the transaction is carried out within the period of two years after a person’s death, and

· no consideration in money or money’s worth other than the making of a variation of another such disposition is given for it. N.B. consideration here does not include any secured debt assumed.”

Is this strictly correct?

It seems to me that where external consideration is provided, exemption under Sch 3 para 4 is inapplicable. However, the quantum of the consideration then subject to SDLT excludes consideration re the making of another variation [Sch 4 para 8A(2)]. But is it not the case that the subsequent assent of property subject to debt fails to fall to be treated as exempt as Sch 3 para 3A is itself not then satisfied?

As my previous post mentioned there is no reading back for SDLT purposes and thus the recipient under the DoV does not, as required under para 3A, acquire the property pursuant to an entitlement under the Will. Any assumed debt would thus constitute chargeable consideration.

Malcolm Finney