Many people are considering making transfers of their property or land to their children or other family members in light of the upcoming dramatic changes to inheritance tax rules for farmers and landed families.
Whilst it may be advantageous to transfer land or properties ahead of the inheritance tax changes, there are many matters to be considered and we strongly recommend that you talk to your family and take both legal and tax advice before making any decisions. A collaborative approach with your family, legal advisors and financial planners/tax advisors will ensure you achieve the most beneficial outcome.
A key consideration, which we find in practice is often missed, is whether the property or land is charged or loaned and, whether the party receiving the property or land, is taking on the responsibility of any of this debt. If so, this is called assumption of debt and this may give rise to stamp duty land tax being payable. An assessment of any SDLT due for debt secured against a property should form part of the IHT tax planning considerations being discussed with your tax adviser.
When is stamp duty payable?
The relevant provisions regarding what constitutes chargeable consideration and therefore what may attract Stamp Duty Land Tax are detailed in Paragraph 8 of Schedule 4 FA 2003.
The basic rule is that where the consideration for a land transaction consists in whole or in part of:
- the satisfaction or release of debt due to the purchaser or owed by the vendor (paragraph 8(1)(a)); or
- the assumption of ‘existing debt’ by the purchaser (paragraph 8(1)(b)),
the amount of debt satisfied, released or assumed is taken to be the whole or, as the case may be, part of the chargeable consideration for the transaction.
Where:
- debt is secured on the property immediately before and after the land transaction; and
- the rights or liabilities of any party in relation to that debt are changed as a result of or in connection with the transaction,
there is taken to be an assumption of debt by the purchaser falling within paragraph 8(1)(b).
Assumption of debt occurs when a person takes on the existing mortgage, charge, debt or financial responsibilities associated with the property. There are many ways in which this can occur, for example: –
- Indemnity – if the transferee agrees to indemnify the original owner against debt-related claims.
- Covenant – the transferee covenants to pay. However, it is important to note that even if you do not provide a personal covenant, if you are assuming possession and rights over the property you may still be responsible for part of the debt.
- Release – where the original owner is released from their obligation to pay. This is an important one, often missed.
In these instances Stamp Duty Land Tax may be payable.
More on Stamp Duty Land Tax
Do I have to pay stamp duty land tax if I already own the property?
Stamp duty land tax liability is not just a consideration for new parties being added to a property title. There is another important consideration for existing owners which arises out of joint ownership. This should be considered whether the property is moving from sole to joint ownership or, joint to sole ownership. For the purposes of calculating whether stamp duty is payable the responsibility for the debt is divided amongst all of the property owners based upon their respective shares in the property. For example, a property is owned by 2 people each owning a 50% share. Those parties have a £400,000 mortgage. One of the owners is transferring their share in the property, to the other. There is no cash payment being made by the owner receiving the whole property but, they are taking on the whole of the mortgage debt. Therefore, for stamp duty land tax purposes, the chargeable consideration is half the mortgage debt, namely, £200,000.00.
When is the higher rate of a stamp duty land tax payable?
When looking to consider transferring property or land it is important to note that different stamp duty land tax rates apply to residential and non-residential properties.
In addition, if the party receiving property or land by the way of transfer already owns a primary residential residence, a higher rate of stamp duty land tax may apply. This may also be the case if you own a property not based in the UK. It is also important to note that the higher stamp duty land tax rate is applicable even if the value is under £125,000.
How Moore Barlow can help
If you are considering undertaking any transfer of property please discuss any debts or financial responsibilities associated with the property to be transferred with your financial and tax advisors and solicitors to ensure that any potential stamp duty land tax liability is taken into consideration. We are able to assist you in completing property and land transfers prior to April 2026 and with filing any necessary stamp duty land tax returns upon your behalf. Please do not hesitate to contact us if we can be of any assistance.
The wider impact
We appreciate that our worked illustration above purely deals with the legal aspect of an inheritance tax calculation but, we are keenly aware of the wider impact the government announcement is having on farming families and the stress and worry that this is causing both individuals and families. Our Rural law solicitors are here to help.
Additionally, If you are affected by the issues in this article, FarmWell may be able to assist you; visit the FarmWell website or call 03000 111 999, being an independent charity supporting the mental health and wellbeing of farming families.
