Do I pay Stamp Duty Land Tax (SDLT) on a transfer of equity?

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Depending on the circumstances, Stamp Duty Land Tax (SDLT) may be payable when transferring equity in a property or land. We explain when SDLT will be payable and and how it is calculated.

In this article:

What is a transfer of equity?

A 'transfer of equity' is when an existing owner of a property (or land) adds or removes one or more people to the title (ownership) of the property, or transfers full ownership of the property to another person.

You might transfer equity when:

  • Selling your share in a property
  • Buying out an ex-partner
  • Buying out a joint owner
  • Adding a new partner or spouse to the title of your property
  • Gifting a property (or share in a property) to a child
  • Inheritance Tax (IHT) planning.

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax payable to HMRC on property and land purchases.

Unless you are an eligible first-time buyer, you pay SDLT when you buy a residential property in England or Northern Ireland for more than the current threshold of £125,000.

Depending on the circumstances, SDLT may also be payable when transferring equity in a property or land, from one person to another.

(In Scotland, you pay Land and Buildings Transaction Tax (LBTT), and in Wales you pay Land Transaction Tax (LTT).)

Is the Stamp Duty threshold the same on a transfer of equity?

Yes. SDLT will only be payable if the chargeable consideration exceeds £125,000.

If the equity being transferred is in a second property (e.g. a second home, a buy-to-let or a holiday let), the SDLT threshold is £40,000.

How is SDLT calculated on a transfer of equity?

Chargeable consideration

When transferring equity held in property or land, SDLT is payable on the 'chargeable consideration'.

When purchasing a property outright, chargeable consideration is the purchase price of the property.

When transferring equity, however, chargeable consideration is calculated as follows:

The amount of debt transferred or taken on (the mortgage)

plus

The amount being paid for the equity.

Example:

David owns a property worth £600,000. David and Sheila get married and David transfers equity in his property to Sheila.

In Example 1 in the table below, there is no mortgage and David gifts 50% of his equity to Sheila.

In Example 2, David gifts 50% of his equity to Sheila, but there is a mortgage of £200,000.

In Example 3, Sheila pays £200,000 for 50% of David's equity and there is a mortgage of £200,000.

Chargeable consideration would be calculated as follows:

Example 1 Example 2 Example 3
Value of property £600,000 £600,000 £600,000
David's equity in the property before the transfer £600,000 £400,000 £400,000
Value of David's equity transferred to Sheila (50%) £300,000 £200,000 £200,000
Amount Sheila pays David for the equity £0 £0 £200,000
Outstanding mortgage £0 £200,000 £200,000
Amount of mortgage being taken on by Sheila £0 £100,000 £100,000
Chargeable consideration £0 £100,000 £300,000
SDLT Payable £0

£0

(chargeable consideration is below the £125,000 threshold)

£5,000

Calculated as £2,500 (2% of £125,000) + £2,500 (5% of £50,000)

How much Stamp Duty will I have to pay on a transfer of equity?

The current SDLT rates are:

Chargeable Consideration SDLT % Rate Second Home SDLT % Rate*
Up to £125,000 0% 3%
The next £125,001 - £250,000 2% 5%
The next £250,001 - £925,000 5% 8%
The next £925,001 - £1.5m 10% 13%
The amount over £1.5m 12% 15%

*If equity is being transferred in a buy-to-let or second property, an additional 3% stamp duty must be paid on all the relevant bands if the chargeable consideration is more than £40,000.

In what circumstances is Stamp Duty payable on a transfer of equity?

Whenever equity is transferred from one person to another and the chargeable consideration exceeds the threshold, SDLT will be payable. This applies even if the person receiving the equity already owns a share in the property.

However, there are special circumstances where SDLT may be considered differently:

Gifting a property

If you gift a property (or share in a property) to a child, spouse, civil partner or other other family member and there is no chargeable consideration, SDLT should not be payable.

You are left a property in a will

If you receive a property (or share in a property) in a will, and no payment is being made for the share, there is usually no SDLT to pay.

There will be no SDLT to pay, even if you took over the mortgage from the date the person died.

Getting married, entering into a civil partnership or moving in together

SDLT may be payable if you transfer equity to a spouse, civil partner or partner and the chargeable consideration exceeds the SDLT threshold.

Divorcing/dissolving civil partnership

If you receive a property (or share in a property) as part of a court order or agreement because you are divorcing, dissolving a civil partnership, legally separating or annulling a marriage, there is usually no SDLT to pay.

Separating from a partner (not married or in a civil partnership)

If you are transferring equity when separating from a partner and you are not married or in a civil partnership, SDLT is payable on the chargeable consideration.

Calculate Stamp Duty on your transfer of equity

Transfer of Equity
Stamp Duty Land Tax (SDLT) Calculator

How we can help you

Whether you are gifting a property to a child, getting married or separating, or transferring equity for any other reason, we can help you find an expert conveyancing solicitor. Even if you are just looking for advice, we can help.

If you are also planning to remortgage as part of the transfer process, the remortgage legal work can be completed at the same time as your transfer of equity.

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Disclaimer

Quittance Legal Services does not provide tax or accounting advice. This article is provided for informational purposes only and should not be relied on for, tax or accounting advice. You should consult with your own tax and accounting advisors.

Sce: https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

Chris Salmon, Director

Author:
Chris Salmon, Director