Liable for 3% 'second home' SDLT kicker?

A question for a friend here...

This person is preparing to buy her first house. However, she has previously done a joint mortgage with her sister - to enable the finances to look better. She doesn't live with her sister. She's never paid anything towards the mortgage payment, it was just at application time, her additional salary (and some help with the deposit) made the application look better and go through the Lender's systems easier. I've told her that I think she will be liable for the extra 3% SDLT kicker as that house, her sister owns and lives in, may count as a second home for her.

Is that pessimistic of me? Does the fact she's named on a mortgage mean she effectively has a second home in the eyes of HMRC?

Or are the rules more pragmatic and, as we can see, she does not already own a home and, therefore, would not be liable for the 3% SDLT kicker. It is important because where she's buying that could mean an additional £7,000.

If it does mean she's liable... then I suggested she should take steps to remove herself from that mortgage. Her sister has been happily paying it for more than 2 years, without her help. But I do not know what the process would be for that - do you need to engage a Solicitor or is it just a chat with the Lender? I cannot imagine that a Lender would be overly happy to reduce the number of people liable for their mortgage - even if the person being removed isn't paying anything towards it.

Even though the Lender accepted the joint family application over 2 years ago and progressed it to a mortgage - I did warn her that I thought they'd also expect the 2 applicants to be living at the property. I didn't want to scare her, but could that be against their terms and conditions and might they kick off about that? Part of me expects not, as it wouldn't be reasonable to expect 2 sisters to live together for 25 years... things change and people move on - but does it imply a re-mortgage would now be required, rather than just a simple removal of a name from the existing mortgage?

I would very much appreciate any thoughts on this... I think it should be a simple thing to get her removed from the joint mortgage with her sister, and then she's definitely not liable for the SDLT kicker. But is there a need to even do that?

She isn't buying her first house - she already owns one. She should be registered on the deeds as the mortgage company would insist on this.

This isn't just a case of removing her name. Her sister would need to meet the lending criteria to be able to borrow on her own. The fact that your friend applied for the mortgage "to enable the finances to look better." suggests that her sister could not have borrowed the amount needed to purchase. If she could have borrowed it on her own then surely she would have in the first place?

Perhaps her sister earns more now and/or has more equity built up in the home which means she could borrow the amount needed on her own.

Best thing for your friend and sister is to get some proper advice.

If she's on the deeds then yes she needs to pay the extra stamp duty

She isn't buying her first house - she already owns one. She should be registered on the deeds as the mortgage company would insist on this.

 

This isn't just a case of removing her name. Her sister would need to meet the lending criteria to be able to borrow on her own. The fact that your friend applied for the mortgage "to enable the finances to look better." suggests that her sister could not have borrowed the amount needed to purchase. If she could have borrowed it on her own then surely she would have in the first place?

 

Perhaps her sister earns more now and/or has more equity built up in the home which means she could borrow the amount needed on her own.

This is a good summing-up of the situation as I see it too... so the 3% would be payable as it stands today - that's good feedback, as I thought so too.

The sister does earn more now... but I wonder if a re-mortgage is required and whether it's best to say to them that their best approach would be talking to the Lender in the first instance, or to a professional legal-eagle.

I have read HMRC's site and I think that if she gifted her interest in the property to her sister then no other SDLT would be payable, on that 'transfer', but even that is not 100% clear to me.

---------- Post added 14-05-2017 at 11:04 ----------

If she's on the deeds then yes she needs to pay the extra stamp duty

Thank you. I thought as much. So it looks like there's something to do for this to make sense... as paying thousands in SDLT is not sensible.

The sister does earn more now... but I wonder if a re-mortgage is required and whether it's best to say to them that their best approach would be talking to the Lender in the first instance, or to a professional legal-eagle.

Talking to the lender would be the first step but I would speak to a mortgage advisor too if the sister does want to buy the home outright. The current lender might say no she cannot afford the mortgage but another lender might say yes. Also she may get a better deal - me and my husband always go via mortgage advisor and it has saved us thousands.

Also does this sister want to buy on her own? If she does but can't afford it was does your friend intend to do? This does have the potential to get messy, so proper advice is essential.

Their backup was that the SDLT kicker would be paid, but split 50-50. I said that's crazy! It's just money going into an HMRC black hole... when the situation in reality is that it is not her second home (home being stressed)... she's not a Landlord and it's not a holiday home, it was just a mechanism to enable her sister to get on the property ladder in an easier(?) way (I'm not sure of the rationale beyond that, as I wasn't party to the history).

But - yes - potential to get messy.

I think the idea was a silly one, very silly. I suspect that no agreement was made about how the house is to be split if it is sold?

My understanding is that unless it is put in writing then they both own half and subsequently half the equity. Your friend could claim half the equity which of course she may choose not to as it is her sister but then again families don't always get along.

They should have drawn up a legal agreement before purchase about what happens to the equity and what happens if one wants to sell.

Agreed. They're sisters, though... I doubt they think along those lines. I could be wrong. This girl has only put in some cash for the deposit side of it - she commented that this is considered money gifted to her sister anyway. She just wants to get her own place now and, prior to recent changes, the SDLT thing would not have mattered one jot. So it's what I call a "gotcha".

Well I doubt they did but even though I love my sister if I was to do anything like this I would have had an agreement drawn up first but then maybe that just me.

My in-laws are currently going through a court case with each other. Sister-in-law and husband versus my parents in law. It has gone from my sister-in-law relying on her parents to bail her out of the many stupid situations she created and helping look after her kids to her now thinking that her parents are the equivalent of the devil in the flesh.

If you had asked me two years ago if my sister-in-law would be lie to the courts, police and social services about her parents then I would have said you were crazy. Now I wouldn't expect anything else.

I hope this friend for future reference, if she decides to do something similar again, gets an agreement first. Families are weird, very weird and stuff can change in a heart beat.

I agree with you... but I think my friend wants nothing from her sister, and same the other way around, she just wants to avoid the 'blocker' she has in place with this new tax policy.

If my friend wanted her sister to take on a new mortgage and to repay her the deposit she helped her with it would be a different story, but there's none of that - her sister has been paying 100% of the mortgage and the deposit gift was just that. So I hope it all works out.

Does this help any?

https://www.sheffieldforum.co.uk/showthread.php?t=1509071

A question for a friend here...

 

This person is preparing to buy her first house. However, she has previously done a joint mortgage with her sister - to enable the finances to look better. She doesn't live with her sister. She's never paid anything towards the mortgage payment, it was just at application time, her additional salary (and some help with the deposit) made the application look better and go through the Lender's systems easier. I've told her that I think she will be liable for the extra 3% SDLT kicker as that house, her sister owns and lives in, may count as a second home for her.

 

Is that pessimistic of me? Does the fact she's named on a mortgage mean she effectively has a second home in the eyes of HMRC?

 

Or are the rules more pragmatic and, as we can see, she does not already own a home and, therefore, would not be liable for the 3% SDLT kicker. It is important because where she's buying that could mean an additional £7,000.

 

If it does mean she's liable... then I suggested she should take steps to remove herself from that mortgage. Her sister has been happily paying it for more than 2 years, without her help. But I do not know what the process would be for that - do you need to engage a Solicitor or is it just a chat with the Lender? I cannot imagine that a Lender would be overly happy to reduce the number of people liable for their mortgage - even if the person being removed isn't paying anything towards it.

 

Even though the Lender accepted the joint family application over 2 years ago and progressed it to a mortgage - I did warn her that I thought they'd also expect the 2 applicants to be living at the property. I didn't want to scare her, but could that be against their terms and conditions and might they kick off about that? Part of me expects not, as it wouldn't be reasonable to expect 2 sisters to live together for 25 years... things change and people move on - but does it imply a re-mortgage would now be required, rather than just a simple removal of a name from the existing mortgage?

 

I would very much appreciate any thoughts on this... I think it should be a simple thing to get her removed from the joint mortgage with her sister, and then she's definitely not liable for the SDLT kicker. But is there a need to even do that?

Hippogriff, this is HMRC you are talking about, they are definitely not pragmatic. In this circumstance the 3% would definitely be due. The only way out of it would be a transfer of equity on the Sisters property, the lender she is currently with is unlikely to just accept that she wants out of the mortgage so I would guess a re-mortgage will be required. I think though that she will be given a grace period, so buy new house, pay additional SDLT then I think HMRC will give her 2 or 3 years to do the transfer of equity and then the additional tax will be refunded.

The rules are so complicated, working in the industry I spoke to about 10 conveyancers and HMRC themselves to try and get my head around SDLT and no one knows the definitive rules. HMRC read from a prompt sheet that offers no flexibility for unusual circumstances and I got differing responses from the conveyances.

It's a minefield and far to complicated.