LBTT2003 - Debt as consideration

LBTT guidance on the treatment of debt when determining the chargeable consideration in a land transaction.

Debt as a consideration

Chargeable consideration can be the:

  • satisfaction (release) of a debt due to the buyer or owed by the seller, or
  • assumption of an existing debt by the buyer.

It does not matter whether it is in part or a whole amount. The debt which has been satisfied, released or assumed determines the amount of the chargeable consideration.  That amount cannot exceed the market value of the purchased or transferred property (see LBTT2016).

Assumption of existing debt by the buyer

For the purpose of determining chargeable consideration for a land transaction you  assume a debt when:

  • a debt is secured on property both immediately before and immediately after a land transaction and the rights or liabilities of any party to the transaction in relation to that debt change;
  • there is an agreement between two or more people whereby one or more of them agree to be liable for an existing debt when they were not previously liable for it;
  • one party indemnifies another for any liability the other party has in relation to a debt.

In addition, if a debt is discharged or released, in whole or in part, in connection with a land transaction then the amount discharged or released forms chargeable consideration.

Where a property is held in undivided shares by two or more persons (colloquially referred as as being “in joint names”) then, if a secured debt is assumed, the chargeable consideration is the proportion of the debt corresponding to the amount of each person’s individual share of the property.

Debt is defined as an obligation, whether certain or contingent, to pay a sum of money either immediately or at a future date.

There are three worked examples, which show different sets of circumstances where debt may be treated as the chargeable consideration:

Example 35A: Individual acquiring a half share of a dwelling with a new mortgage

Example 35B: Individual acquiring a half share of a dwelling and assuming existing mortgage debt

Example 35C: Individual acquiring the remaining share of a dwelling and assuming existing mortgage debt

 

Ref ID

LBTT2003

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