What are the (stamp duty) tax implications here?

[HousingHeadache]

A few years ago my long-term partner and I bought a house together as joint tenants, with cash, so we don't have a mortgage.

We have sadly realised over some time that we are probably better as close friends, but not life partners, and so he is now looking for a place to buy and move into. We're not in a huge rush (our relationship is amicable and we get along well together), but he is actively looking.

He is in the fortunate position of being able to buy a new place with cash, without needing to sell his half of our house. I am also in the position of being able to buy him out of his half of our house when needed (my plan is to stay here). However, for now we would both prefer to have him move into a new place (which would be his sole residence), while retaining his share of this house, and deal with the financials of this house later.

But what are the stamp duty (and any other) tax implications of this? Does he need to pay the 3% surcharge even though the new place would be his primary (only) residence, and he would just be retaining a 50% share of this house? If so, would he be able to claim it back later? I've read about a 36-month rule, but I don't know if there would be any differences in our particular circumstances.

I don't actually know how it works for one person to buy another out of their share of a house in a situation like ours. How much formality needs to be involved? Do we need solicitors etc.? We are fully on the same page about everything, so keeping it as simple as possible will be a priority.

If he sells his half of your house to you within 3 years he can reclaim the SDLT surcharge on the new house.

You might have to pay SDLT buying him out if the cost of his share is above the SDLT threshold, i.e if you pay him more than £250k.

I think.

Oh, I hadn't thought of that. Ugh, it kind of feels like paying stamp duty twice then, since there's no new purchase of the house.

Who decides what I owe him for his share of the house, though? Is there some legal way in which this needs to be decided? I know this is an extreme example, but hypothetically, if he was happy to sell his half to me for much less than he actually paid for it, would that be allowed without tax repercussions?

No you would pay stamp duty based on the market value of his half share not what you pay if lower.

Who decides market value? Isn't that what someone is prepared to pay for it, which we wouldn't know? I wouldn't trust a valuation from an estate agent in this market — everything around here seems to go for significantly less than originally valued.

What if he decided to gift me his share? Presumably then it would just be CGT on any increase in value (and if it hasn't increased in value, there would be no tax).

All sources I've found on the internet seem to suggest otherwise: that it's based on the amount paid for that share.

There is something that doesn't add up here though. If the price can be set arbitrarily low by the two parties (if in agreement), that would seem to provide a way to legally avoid paying stamp duty. Of course it would only work in a situation where the person being bought out was happy to take a lower price. But I can think of circumstances where this would make sense for those involved.

It's hard to find good info about this on the web, because it's a bit of a niche situation, and there's no mortgage involved (that's what most resources are about).

You are no longer his partner though.

What is your point?

being excused from stamp duty is when it is mortgage free and a familial gift or between partners.

He would have to pay the levy and then claim it back when he sells his share of the house you own together.

You will have to pay stamp duty when you buy him out unless you’re married or in a civil partnership.

Right, but the point I was making there is that stamp duty is calculated based on the amount paid for the property, so if he (hypothetically) was happy for me to pay lower than market value for his half of the house, then it would be possible to reduce/eliminate stamp duty that way. Whether he'd want to do that is another matter. I'm just trying to understand the exact legalities involved.

He will have to pay the additional 3% stamp duty on the new property because he already owns part of a house

He will also potentially have to pay capital gains tax on any profit he makes between moving out and selling it

And you will need to pay stamp duty on the other 50% of the property when you purchase it from him

He cannot sell to you below market value to save tax or stamp duty. These would be due based on market value even if he gave his half of the property to you for nothing, this is covered by legislation

But your first two points don't apply if I buy him out of his half of our house within 36 months, right? Because he's then just moving from one home to another, and not retaining a second property.

Would you be able to share a reference for your last point? I've scoured the internet and can't find anything that supports this, so it would be really helpful to have a link. (Everything I've found says it's based on the price paid, not the market value. Obviously the price paid is usually going to be based on the market value, but that doesn't have to be the case, so I want to understand the exact rules.)

Capital gains tax will be relevant, there is only a 9 month exemption for that

https://goodmove.co.uk/blog/selling-advice/can-i-sell-my-house-to-a-family-member-below-its-fair-value/#:~:text=The%20relative%20who%20bought%20your,or%20purchasing%20a%20second%20property. is also relevant if he sells to you at below market value

This isn't the case.

The OP and her partner are not married or related, so the transaction is not deemed to be a connected transfer, meaning this rule doesn't apply. You are deemed to have sold/transferred at market value if you gift a property or transfer for less than market value to a husband/wife/dad/mum/sibling. This isn't the case if you are unconnected, as the OP is. A partner (or ex partner) doesn't count.

Okay, a related question that might help answer some of the above: in a situation like ours, what rules are in place to stop him just gifting his half of the property to me? And me just gifting him a large sum at some point in the future (effectively, but not officially, to cover the half of the property he gave to me)? Presumably most people wouldn't do this, because it relies on complete trust between the two parties, and so is very financially risky for the one gifting their portion of the house. But hypothetically, would that be possible without tax implications (apart from IHT if one party died within the next 7 years)?

The fact it is an artificial arrangement (by the looks of it you're trying to evade CGT..) meaning it's a bargain arranged outside of being an arms length transaction and therefore the transfer will be deemed to have taken place at market value, saving no CGT at all.

Oh, wait, how does CGT factor into this? I don't quite understand (I didn't realise CGT would even factor into it at all, since neither party would be retaining more than one residence in that scenario).

I think you need proper formal and qualified financial advice about the property purchases/sales and its tax implications. Work out what you are actually trying to achieve and what is the most tax efficient way of doing it without carrying out tax evasion.
This approach would ensure you don’t store up trouble for yourselves at a later date.

I have no intention of evading anything — I'm just trying to understand exactly what the rules are in various niche scenarios so that we choose the most tax-efficient (legal and generally accepted) way of doing this.

My questions above with the hypothetical scenarios are not things I intend to happen. I asked them because the answers to will help me build up an understanding of how this all works. Of course I will get formal qualified advice when the time comes, but I am hoping to have at least a basic understanding of the rules before then so I feel somewhat prepared.

OP, your suggestion to try and wriggle out is evasion. It’s plain and simple.

When he buys, he will be subject to surcharge, reclaimable in 3 years if he disposes of the previous property.

When he sells to you he will be subject to CGT on his share but this is only on the increase. Let’s say you bought the house for £300k, it’s now worth £400k. His 50% increase is £50k. He can use his CGT allowance to reduce the amount but will still pay tax.

You will pay SDLT on the market value. You’ll usually get estate agent valuations or they’ll use a desktop valuation. Use Zoopla for now. You could argue for the lowest value which may not be too high, but it’ll still be due as you are strangers essentially. To not do this will be evasion.

It's only evasion if something is done illegally. I am not suggesting doing anything illegal — I am trying to find out what is and isn't legal, by using examples that relate to our situation. There are lots of complexities to tax, as is clear from some posts above where people have been mistaken. That is why I have asked the clarifying questions — to try to drill into the bits where there is clearly a misunderstanding. Using hypothetical examples (which may turn out to be not legal) in order to get a better understanding of the legalities of this whole situation is not the same as trying to do something illegal. It seems very strange to accuse me of trying to evade tax, when I am asking questions (involving potentially dubious scenarios) to make sure I understand the ins and outs of what is legal!

I understand that I will need to pay SDLT if I buy his half. Though it is still not clear to me how the value of this is determined in this situation. All sources I've found on the internet say it's based on the price paid (which would usually correspond to the market value). Certainly when we bought this house, we paid SDLT on the price we paid, not the price it was originally marketed at. So why would it be any different here? Who would determine the "market value" if not us, as the buyer and seller in the arrangement.

Presumably he would not be subject to CGT if he sold his half to me at the same time as (or before) buying the new place?

(If you just meant to say that the hypothetical scenario I gave would constitute tax evasion, then fair enough — that is good to know. But it sounded like you were suggesting that I am trying to evade tax, and that is what upset me. I have absolutely no intention of doing that. Similarly, I don't want to accidentally carry out the various transactions in such a way that we end up paying much more tax than we needed to, e.g. it sounds like if he sells his half to me after buying the new place, he might be subject to CGT, where he otherwise wouldn't be. Though I'm still not clear if this is the case. I just want to make sure we do the most tax-efficient, legal, thing for our circumstances.)

Here are some concrete questions, independent of my situation, that I would like to understand:

1. What are the tax implications of gifting a property to a non-relative?
2. Is there any scenario where SDLT payable would be different from that calculated based on the actual purchase price?
3. Is there any situation in which the sale of a primary residence would be subject to CGT, if the sale was completed on or before the date a new primary residence was purchased?