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Do I need to pay stamp duty? - Ask Our Expert
Dear Chris,
I need some help on the issue of stamp duty and whether I need to pay it. Firstly I’ll describe my situation…
I am a first-time buyer. I have never purchased any property here or abroad. I live with my girlfriend who owns the property in which we live. She bought the property in 2007 for £285k. She put down a deposit of £30k and borrowed £255k on an interest only mortgage. She paid the full 3% stamp duty based on the buying price of £285k.
We have agreed that I will now buy into the property and we will become joint tenants. We intend to switch mortgages to a £200k mortgage. I will contribute a deposit of £42,500 and she will supplement her original deposit with a further £12,500 so the total money deposited rises to £85k.
I’m aware that there is currently a stamp duty holiday for first time buyers so my question is, do we have to pay more stamp duty considering she paid the full rate when we bought the property and I am a first time buyer? I’m struggling to get clarification and certain people have suggested that we will have to pay stamp duty on half the value of the existing debt plus any money being paid. That seems completely unfair.
Thanks
Daniel
(via email 1 June 2010)Our money expert says…
Hi Daniel,
As complicated as your situation might seem to be, from what I can gather it is really rather basic and the short answer to your question is no, you will not need to pay stamp duty.
Here is why.
In short, technically the only transfer taking place is that you are giving your girlfriend £42,000 – way below the current stamp duty threshold.
It is also a remortgage not a house purchase - at the moment you will only pay stamp duty if you purchase a property for more than £250K.
Because your girlfriend is already the owner and you are simply going to remortgage then the only money changing hands is your £42,000 deposit.
Threshold
What’s more, there is no way your half of the property would exceed the £250,000 limit even if you were buying it.
If the property was worth £285k in 2007 it will probably not be worth much more than that today considering the fall house prices have experienced over the last couple of years.
If you were to actually buy half of the house this would then be 142,500 - again way below the stamp duty threshold.
Remortgage
However, the transaction is not a repurchase it is just a remortgage and therefore stamp duty is not applicable anyway.
The transaction therefore is your contribution of £42,000 – you are paying your girlfriend effectively £42,000 and she is going to transfer part of her interest in the property to you for that fee.
Then you will both own the property 50/50.
After that you will both be jointly liable for the mortgage debt, and I guess as the property would also now be in joint names, you will both be liable on the lease as well.
Other fees
You should be aware however that with any mortgage transaction there will be various legal fees and other fees involved which you will be expected to pay.
For example there will be a land registry fee payable of around £50.
In addition, to do a transfer of equity with a remortgage involved the legal costs would usually be in the region £350 plus VAT.
All in all I’d keep £500 or so aside to cover these extra costs, but don’t worry about paying stamp duty.