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Understanding Stamp Duty on Gifted Property

Published by Susan Basnet
Posted Date: May 20, 2024 , Modified Date: May 22, 2024

When you receive a property as a gift, various taxes may apply, including inheritance tax. However, should you consider other taxes like Stamp Duty Land Tax (SDLT) upon receiving the gift? Let's find out with this article.

What is Stamp Duty?

Stamp duty is a tax charged by HMRC when properties or shares are purchased in the UK.  Various types of stamp duty are applicable to the purchases based on their nature.

For Example, 

Stamp Duty Land Tax (SDLT) is applicable to the purchase of properties, whereas stamp duty reserve tax (SDRT) is paid on the purchase of shares. The rates applied also defer, depending on the kind of purchases.

SDLT on Properties Left in a Will

If you inherit a property through a will, there is no Stamp Duty Land Tax payable by the recipient. This exemption holds true even if the outstanding mortgage on the property is transferred to you upon the death of the person.

However, it's crucial to understand that this exemption applies only if the recipient does not provide any chargeable consideration in connection to the received property.

SDLT on Properties Given as a Gift

When it comes to the properties received as a gift, SDLT is not so straightforward. Broadly, whether SDLT applies in such a scenario is contingent upon whether the property has any outstanding mortgage on it.

SDLT on properties given as a gift

If the outstanding mortgage does not exceed the SDLT threshold, there is no need to pay SDLT. However, the liability exists if the outstanding mortgage exceeds the SDLT threshold.

Outstanding Mortgage

SDLT Rates

Up to £250,000

0%

Above 250,000 and up to 925,000

5%

£925,001 - £1.5m

10%

Above £1.5m

12%

For Example, 

Mr. McCartney owns a residential property worth £700,000, and the outstanding mortgage on the property is £600,000. He then decides to transfer half of the property to his spouse. His wife is now taking half the responsibility for the outstanding mortgage, i.e. £300,000, and SDLT is paid on that amount. As such, her SDLT liability is calculated as illustrated below:

0% on the first £250,000 – £0

5% on the next £50,000 (300,000-250,000) –£2,500.

Mrs. McCartney would be liable to pay £2,500 in stamp duty land taxes.

However, if accepting the gift leads to Mrs. McCartney owning more than one property, her Stamp Duty Land Tax (SDLT) liability would be slightly altered as she would be subject to SDLT surcharge rates. In this case, her SDLT would be calculated as follows:

3% on the first £250,000 - £7,500

8% on the next £50,000 (from £250,000 to £300,000) - £4,000.

Consequently, under this revised scenario, Mrs McCartney would be required to pay £11,500 in Stamp Duty Land Taxes.

SDLT on the Transfer of Property to a Company

When a property undergoes a transfer from an individual's name to a company, Stamp Duty Land Tax (SDLT) becomes applicable based on the property's market value at the transfer date. It's important to highlight that the SDLT computation doesn't consider any chargeable consideration provided. Rather, it is determined solely by the market value of the property at the time of the transfer.

This condition holds true in either of the following scenarios:

  • The individual transferring the property is 'connected' with the company,
    i.e. relatives and individuals who have some involvement with the company.
  • The company pays for the property with shares in the company, either partially or entirely, to the person facilitating the transfer.

Conclusion

In conclusion, navigating the realm of Stamp Duty Land Tax (SDLT) on gifted properties can be complex, influenced by factors such as outstanding mortgage amounts and the recipient's existing property portfolio. Whether you find yourself exempt from SDLT or facing potential liabilities, being well-versed in the applicable rates and conditions ensures a smoother journey through the complexities of property transactions.

It is advisable to seek professional advice to ensure compliance and minimise unexpected financial implications associated with SDLT on gifted properties.

Need expert advice on Stamp Duty on Gifted Properties?

Contact us today for efficient and
hassle-free assistance.

Susan Basnet
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