Stamp duty land tax (SDLT) is currently payable by purchasers of property located in England, Wales and Northern Ireland. This article does not apply to properties Scotland, which has its own property law, and the land and buildings transaction tax (LBTT).
Where freehold residential property is jointly owned, it may be held in two ways: as joint tenants, where each person holds an undivided share, or as tenants in common, where each person hold a defined share, such as 40% and 60%. “Joint tenants” is the default, which conveyancing solicitors prefer, and it has the advantage that when one of the owners dies the other owner automatically acquires ownership of the entire property.
“Tenants in common” can form part of an IHT plan, as the owners may chose to leave their share in the property to a third person. Investment properties may be held in this way, so the joint owners can be taxed on the profits in relation to their beneficial interest in the property, rather than on a 50:50 split. Although a married couple/ civil partners need to declare the split of ownership on form 17, and submit that declaration to HMRC.
The rates of SDLT were increased on 1 April 2016 to include a 3% supplement on the entire value where an additional residential property is acquired for £40,000 or more. An individual is treated as acquiring an additional property if he already holds a major interest in a residential property which is worth £40,000 or more, which is not subject to a lease which has more than 21 years to run.
Say Fred and Ginger own their home as tenants in common. Fred dies and does not leave his share in the property to Ginger. Fred’s executors agree to sell Fred’s share in the property to Ginger for £80,000. Ginger already owns a major interest in a property (her own home), so the acquisition of another interest in a residential property meets the conditions for the 3% SDLT charge to apply. It is irrelevant that the interest Ginger acquires is in the property which she already partly owns.