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.

There are lots of factors for CGT. Whether he still lives in the property, if not, when he left the property, exact dates will determine the reliefs he gets (principal private residence etc), the figures involved. Simply not owning another property doesn't mean CGT doesn't apply here when he transfers ownership of his half.

You need paid-for advice, it's far too complex for me to sit here and try and explain all the rules without having all the details.

@FriendlyNeighbourhoodAccountant thanks for the replies.

Just to keep the question simple, could there be any CGT implications in either of these scenarios:

1. I buy his half of the property on the date he buys a new property, and from that date, he only lives in the new property.
2. He gifts me his half of the property on the date he buys a new property, and from that date, he only lives in the new property. (The gifting part is not likely to happen 😅but I still want to understand.)

In both scenarios, he never owns more than one property at the same time, so he wouldn't at any point be selling a secondary residence.

It isn't about owning a second property for CGT, you're getting confused with SDLT. The point is whether the property has actually been his principal private residence over that time, or if he's lived elsewhere. If he's rented elsewhere then ideally he should have made an election at the time to have the property he owned nominated as his principal residence. If he had a tenancy elsewhere then it hasn't been. The idea with PPR (other than certain rules, living abroad, living elsewhere by virtue of employment etc) is it actually does have to be your primary residence, not just the only property you own.

Sorry, yes, I've been conflating PPR with ownership because in our situation it is a straightforward case of PPR having only been this house for both of us for the duration of the time we have owned it (no renting, no second ownership).

The last sentence in my previous post should read: "In both scenarios, he never owns more than one property at a time, and never lives in any property other than the one he owns."

Going back to the question in my previous post, and taking into account this clarification, could there be any CGT implications in either of the scenarios I described?

If he's lived there the entire time then there would be no CGT to pay, however you say your ideal scenario was that he buys somewhere else and the transfer to you doesn't happen yet. Depending on the numbers, and how long he owns the 50% for before transferring to you that is when the potential CGT gain may arise.

That makes sense, thanks. I am starting to rethink the "ideal scenario", because I value simplicity! Seems like getting it all done at the same time may save some complications.

What would be the CGT implications if he were to buy a new place, but the current house remained his PPR until the day he transferred his half to me (and on that day he also moved into the new place, making it his only residence)?

So he would buy another property but leave it empty until he transfers the current property to you?

It would mean he wouldn't be eligible for PPR on his new property for that period of time, might not be material depending on how long he takes to move in though.

He would also have to consider most councils charge 200% council tax on empty properties after a few months so that will cost his extra. Leaving a property empty for more than 28 days usually invalidates home insurance as well.

I don't understand why he isn't just purchasing a new property, moving in and you buying him out all at the same time?

Okay, good to know, thanks. My last question was more out of curiosity, rather than a likely scenario. (I was wondering if keeping this house as his PPR for a short time after buying a new place would be a way of reducing stress by not having to line up everything on the same day, but without being penalised financially for it.)

I think now I know all this, we probably will just go for him purchasing the new property, moving in, and me buying him out all at the same time. I didn't realise when I first posted how complicated it could get with the different taxes. The main motivation for not lining it all up was to make things simpler for us by being able to space things out a bit. But it's not looking like that will actually be simpler, so doing it all at once is looking a lot more appealing now.

One more question: is it up to us how we value the house for the purpose of me buying his half, if we both agree on it? And is the SDLT I will owe based on the amount I pay him?

Usually you would need an estate agent valuation. They are professionals you know, they don't just make stuff up. I'm currently doing probate for my mum and I have to send an official estate agent valuation with the IHT forms. We all know a valuation and what it sells for on the open market are different, but your situation is not selling on the open market.

But isn't your situation different, because it's about inheritance rather than buying and selling? I presume the independent valuation is needed to determine how much IHT is due, otherwise how would it be done?

In the situation I'm describing, there is money exchanging hands for the property, so isn't the SDLT calculated based on that amount only?

You do seem to be over complicating what seems like a relatively simple process that many couples do when they break-up.

Not sure on your last question. I refer most SDLT questions to either the clients own solicitor or our legal team, it's not my area unfortunately.

You can get a surveyor to do an objective valuation.
A mortgage provider would also do a (erring on the side of caution, low valuation)

You bit need to take proper advice on this not rely on people on the internet

My current situation is different, I wasn't suggesting it was the same just using it to show that estate agent valuations do hold some sway. Since you seem to be suggesting it wouldn't.

I have, twice, been through what you're going through and an estate agent valuation was what my solicitors wanted.

I'm not suggesting that estate agent valuations wouldn't matter in any circumstance — I'm just wondering how they would be relevant in a situation where there is a buyer and a seller who have agreed on a sale price that they are both happy with, and there is no mortgage involved (so no third party lender needing an independent valuation).

What did your solicitors want estate agent valuations for when you were going through the same thing as me? Were there mortgages involved?

My ex was buying me out, we had a joint mortgage which only he paid and he had to extend to buy me out.

Obviously I wanted a fair price. But also my solicitor wanted to see that a market price was being used. I don't think there was SDLT to pay because it was under the threshold (and neither of us had another property) - but that was his problem, not mine.
I had in the past bought out an ex and used estate agent valuations. Plus I had a surveyor come and do one.

But the fact HMRC uses it for IHT is a very strong indicator they would also accept or even expect it for SDLT in a situation where a property is not sold on the open market. That's the point I'm making.

To your last point, I would've thought that for legal purposes this would count as being sold on the open market, because there is no familial/legal relationship between us.

AFAIK there's no requirement for people to go via an estate agent or get an independent valuation with a regular sale if there is no mortgage involved (as long as both parties agree on the price), so I wonder why this would be any different.

I'm sure your solicitor can advise you.

hello I know this thread is a bit old but can somebody help me long story short my husbands ex wife (been separated for 15 years has just got in contact through a solicitor to buy my husband out of his share of there house, he walked away with nothing left her and his 2 children in the house agreed not to sell till youngest reached 18 my question is the house is worth around 450,000 and she wants to buy him out with what he paid down as a deposit from inheritance from his late mum which is 90,000 would he there for have to pay any tax on that amount? Any help would be much appreciated thank you.