The ins and outs of property and equity transfers can be complex. You might be wondering whether Stamp Duty is applicable to you - we're here to help. In this guide, we'll deep dive into Stamp Duty Land Tax, equity transfers and what you can expect.
What is a transfer of equity?
First things first - a transfer of equity is the process of changing the legal ownership of a property. Unlike a full sale, it doesn’t involve selling the entire property outright. Instead, it involves adding or removing someone from the title deeds.
When does a transfer of equity happen?
Transfers of equity commonly occur in the following scenarios:
Relationship changes: For instance, when a partner is added to or removed from property ownership during marriage, divorce or separation.
Inheritance or gifting: When part or full ownership is transferred to a family member or friend as a gift.
Reorganising financial arrangements: For example, refinancing a property and transferring equity to meet your lender's requirements.
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax charged on the purchase or transfer of property or land. The tax is paid directly to HMRC and only applies to England or Northern Ireland (Scotland pays Land and Buildings Transaction Tax, and Wales pays Land Transaction Tax). SDLT is calculated based on the property’s value, with different thresholds and rates depending on the circumstances. The thresholds up to March 2025 are:
£250,000 for residential properties
£425,000 for first-time buyers buying a residential property worth £625,000 or less
£150,000 for non-residential land and properties
And from April 2025 are:
£125,000 for residential properties
£300,000 for first-time buyers buying a residential property worth £500,000 or less
£150,000 for non-residential land and properties
Is the threshold the same for a transfer of equity?
Yes, the SDLT threshold is the same for a transfer of equity.
💡Editor's insight
"You might remember, the current thresholds were introduced to help support the housing market. The measure was announced in September 2022 as a permanent change. However, during the Autumn Statement 2022, the government announced that the threshold would change on 31 March 2025. What does it all mean? From April 2025, there'll be much higher SDLT liabilities."
How is SDLT calculated on a transfer of equity?
SDLT becomes payable during a transfer of equity in specific cases, particularly when there is a ‘chargeable consideration’ involved. Chargeable consideration refers to anything of monetary value that the new or existing owner receives in return for the equity transfer.
When buying a property, chargeable consideration is the purchase price of the property. But for transferring equity, it's a little different. You can think of it as the amount of debt being transferred through the mortgage plus the amount being paid for the equity.
When is SDLT payable on a transfer of equity?
If equity is transferred and the chargeable consideration exceeds the threshold, SDLT will be payable. An experienced transfer of equity solicitor will be able to help, though here are a few common situations where SDLT is payable:
Outstanding mortgage transfers: If the person taking ownership assumes responsibility for an existing mortgage, SDLT may be due on their share of the mortgage balance.
Cash payments: If one party pays the other directly for their share of the property, SDLT may apply to the payment value. This will depend on if the total consideration is higher than the SDLT threshold.
Transfers exceeding the SDLT threshold: SDLT applies when the total chargeable consideration exceeds the SDLT threshold, which is currently £250,000 for residential properties (subject to change).
Second properties: If the transfer of equity is on a second property (like a holiday home or buy-to-let), SDLT also applies. However, the threshold is lowered to just £40,000.
When is SDLT not payable on a transfer of equity?
In some scenarios, SDLT is not applicable. Some of the most common include:
No chargeable consideration: In short, if the transfer involves no mortgage and no payment is made, SDLT is not due.
Relief for divorce: SDLT isn't payable for a transfer of equity that is part of an agreement or court order for a divorce, annulment or separation. This is designed to act as a special relief and one of few exemptions.
Gifting property: Typically, SDLT isn't due when gifting a property to a child (learn more in our guide to can I gift my house to my child) if there's no consideration. For example, if there's no outstanding mortgage to pay.
Inheritance: If the transfer of equity is part of an inheritance or will, SDLT isn't usually payable. This also applies if the property is being split between multiple heirs.
What is the Stamp Duty threshold on a transfer of equity?
The SDLT threshold for residential properties is currently set at £250,000 for most buyers. For transfers of equity, the threshold applies to the chargeable consideration rather than the property’s full market value. This means SDLT is only calculated on the amount being paid (like the mortgage balance being taken on or cash payments made), rather than the total property value.
Example calculation:
Property value: £300,000
Outstanding mortgage: £150,000
New owner assumes full mortgage responsibility: Chargeable consideration = £150,000
Since the chargeable consideration is below £250,000, no SDLT would apply unless it is a second property or falls into another taxable category.
FAQs
Is stamp duty payable on transfer of equity for a jointly owned property?
Yes, SDLT may be payable if there is chargeable consideration, such as a mortgage transfer or cash payment. However, if no consideration exists, SDLT will not apply.
How do I calculate SDLT for a transfer of equity?
You calculate SDLT based on the chargeable consideration (mortgage value or payment made). The calculation uses the same rates and thresholds as regular property purchases.
Are transfers of equity between family members exempt from SDLT?
Transfers between family members may be exempt if no mortgage transfer or payment is involved. Otherwise, SDLT could apply.
How long does it take to complete a transfer of equity?
Typically, the process takes 4-6 weeks, but it can vary depending on the complexity and whether lender approval is required.
Can SDLT be claimed back on a transfer of equity?
If SDLT was paid incorrectly, you can apply for a refund by contacting HMRC. However, you'll need to meet specific criteria to qualify for a refund.
Final thoughts
Whether SDLT is payable on a transfer of equity depends on your circumstances. By understanding chargeable considerations and exemptions, you can determine whether tax is due and plan accordingly. SDLT can be complex - it's always advisable to seek help from a financial advisor or specialist property lawyer first.
References
Stamp Duty Land Tax from Gov.UK
SDLT: Transferring ownership from Gov.UK
Stamp Duty Land Tax: temporary increase to thresholds from Gov.UK
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant. Bear in mind that tax rules can change and will differ based on your circumstances.