Income and capital gains tax can be saved by giving a half share of your rental property to your spouse. The trouble is there can be a stamp duty sting in the tail. What steps can you take to avoid this?

Tax saving

A frequently used income tax saving tip for landlords who pay tax at the higher rates is to give a share their let property to their spouses if they pay tax at a lower rate. It’s also usually a good plan for reducing the capital gains tax (CGT) on the property when you sell it. However, there’s one angle that’s easily overlooked amidst the excitement of the other tax planning – that’s stamp duty land tax (SDLT) and the Scottish and Welsh equivalents.

SDLT and couples

Unlike other taxes for which there are special rules for transactions between spouses and civil partners, SDLT treats couples like any other individuals. In fact, the only SDLT concession specifically targeted at them relates to the transfer of property when ceasing to be married, i.e. in the course of a divorce. Outside of that situation, when one spouse transfers a share of a property to the other SDLT is payable on any monetary “consideration” and not its actual value.

SDLT, gifts and loans

At first sight there doesn’t seem to be a problem where the share of a property is transferred as a gift. The trouble occurs if the property is subject to a loan secured on it (a mortgage). The lender must be informed of any transfer of property and will invariably require that the new part-owner must be included in the mortgage documents. In practice this shouldn’t make any difference to the repayments or who actually pays them, but legally it means that part of the debt is transferred to the new part-owner, i.e. your spouse. If the value of the debt exceeds the SDLT etc. nil rate threshold, an SDLT bill is triggered. The threshold is variable depending on whether the property is located in England, Scotland or Wales. However, in each country the tax rate is higher if the transaction is for more than £40,000.

Example. Jan owns a buy-to-let which is subject to a mortgage of £200,000. She gives a 50% share of the property to her husband John. He therefore becomes jointly responsible for the mortgage (even if Jan continues to make the repayments). HMRC treats this as £100,000 (£200,000 x 50%) consideration given to Jan by John. Because it’s their second property the resulting SDLT bill is £3,000 (£100,000 x 3%).

Tax savings v tax bill

Jan and John might be happy to accept the SDLT bill if the income tax and/or CGT savings they make are greater. However, they might be able to achieve the same income tax saving without the SDLT.

Tip. Jan could transfer a smaller share of the property, and thus a correspondingly smaller part of the mortgage, so that the liability transferred is no more than the SDLT nil rate limit – in this case £40,000. Because of the way the income tax rules work this still shifts 50% of the income tax charge from Jan to John.

Tip. Jan and John could create a formal partnership to own the property rental business and share the income more or less how they want. Because of the special rules for transfers of property to partnerships no SDLT charge would result.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.