Individual acquiring the remaining share of a dwelling and assuming existing mortgage debt

Pippa and Bob live together in their main residence which they own jointly in equal shares. They also own jointly a holiday home. The main residence is subject to a mortgage for which Pippa and Bob are each liable for a one half share. Bob wants to transfer his half share of their main residence to Pippa, who will become solely liable to repay the mortgage.

The chargeable consideration will be based on the value of the existing mortgage plus any cash sums paid. The existing mortgage on the dwelling is £320,000. As no cash is being paid, the chargeable consideration will therefore be a half share of the existing mortgage, £160,000.

LBTT will apply on the value of the half share of £160,000. As Pippa already owns a share of the dwelling ADS will not apply.

If Bob and Pippa had been jointly and severally liable each to repay the whole of the mortgage, and the lender discharges Bob of his liability, the same result ensues, as Bob’s liability has changed.  If the lender does not discharge Bob, but Pippa agrees to indemnify him from his liability to the lender, again the same result ensues.  However, if Bob simply transfers his half share to Pippa without being discharged or indemnified from his liability to the lender, there is no LBTT as there is no chargeable consideration – because there has been no change in either Bob or Pippa’s liability for the debt.

Information on debt as consideration can be found in LBTT2003.

Details on the ADS treatment where the transaction involves the acquisition of a further share of a dwelling can be found in the LBTT Technical Bulletin 1.

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