Transferring Second Property into Joint Names: Beware SDLT trap!
We commonly advise married clients who are considering a transfer of rental property from one spouse into joint names. Where the owner spouse is a higher rate taxpayer, there is often a potential to make use of the other spouse’s basic rate tax band. The potential income tax savings are likely to become more valuable, as the restriction of tax relief on finance costs is phased in from April 2017.
As well as income tax, it is important to consider the capital gains tax position, particularly where the property was previously a main residence. A transfer after moving out can result in a loss of capital gains tax reliefs, as mentioned in my colleague Barbara Nicholas’ previous blog.
Stamp Duty Land Tax can be a further complication, exacerbated by the introduction of the 3% additional stamp duty charge for second homes in April 2016, and the change in how stamp duty bands are operated. Where a property is transferred from sole to joint names, whilst there is rarely any cash payment between spouses, the value of any mortgage that the donee spouse assumes responsibility for is treated as ‘consideration’ for stamp duty purposes. Where the property is a second home, and this ‘consideration’ is over £40,000, there will be a 3% charge on the value of the mortgage being assumed by the donee spouse. For those considering a transfer into joint names, we recommend taking professional advice, to ensure that you aren’t caught out by any of these pitfalls.