Can we divide a property up to avoid increased stamp duty?

Can we divide a property up to avoid increased stamp duty?

Q We have a fixed-rate mortgage with Northern Rock at 3.99%. We self- certified to get this deal and since then my wife and I have been unemployed and got new jobs at a lower joint income of about £55,000. There is £470,000 outstanding on the mortgage and our house is valued at £550,000, including some land detached from the house.

We have agreed to do a house swap with our neighbours. Their house is valued at £350,000, so we would have an £80,000 deposit for the purchase and would need a mortgage for the balance. However, it would be useful if we could sell the house for £500,000 to get down to the 3% stamp duty bracket, and sell the land as a separate transaction for cash for £50,000, which is roughly correct based on valuations. Is this going to cause any problems with HM Revenue & Customs (HMRC) and is it legal? Will the land attract lower or no stamp duty on that basis? And can you recommend a mortgage based on the above scenario? DS

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A To answer your last question first, I think you will find it very difficult to get a mortgage of nearly five times your joint salary. So the only thing I can think of is to find out whether your lender will allow you to "port" your current mortgage to a new property. If you are managing to meet the mortgage payments on your current deal the lender shouldn't require further evidence of income because it is obvious you can afford the loan.

As far as your proposals for avoiding stamp duty land tax (SDLT) go, yes they will cause problems with HMRC. While it is perfectly legal to divide up a property transaction into a series of smaller transactions, it won't wash as a way of reducing the SDLT bill. If HMRC believes the transactions are linked in any way, which they clearly would be in your case, stamp duty will be worked out on the total value. So even if you split your swap into two transactions of £500,000 and £50,000, SDLT would still be charged at 4% on £550,000.

However, it is the people with whom you are swapping who will have to pay SDLT at 4% – the property you are buying is less than £500,000 so you will have to pay stamp duty at 3%.

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