Do I Pay Stamp Duty on Transfer of Equity? (The Hidden Debt Trap)

When you transfer property to a family member, partner, or spouse, you might assume it’s tax-free—especially if no money is changing hands. This is the single most common misconception in DIY property transfers.

The reality is that Stamp Duty Land Tax (SDLT) is not just a tax on cash payments; it is a tax on "Consideration."

If you don't understand how HMRC defines "Consideration," you risk an unexpected tax bill or, worse, fines for non-compliance. This guide breaks down exactly how the "Debt-Shift" rule works and how to calculate your liability before you sign a single form.

What Counts as "Consideration"?

In a standard house sale, the "consideration" is the purchase price (e.g., £300,000). But in a Transfer of Equity, consideration is calculated as the total of:

1. Cash Payment: Any lump sum paid to the outgoing owner to "buy them out."
2. Assumed Debt: The share of the outstanding mortgage that the new owner takes on.

The Golden Rule:

If you take a share of the ownership, you take a share of the debt. HMRC views that debt assumption as "money paid" for the property.

Real-World Scenarios: The Math Explained

Let’s look at two detailed examples to see how this impacts your wallet.

Scenario A: The "Under the Threshold" Transfer (Tax-Free)

• Property Value: £500,000
• Outstanding Mortgage: £400,000
• The Plan: You are adding your partner to the title deeds (50% share) so you own it jointly. They pay you £0 in cash.

The Calculation:

Your partner is acquiring 50% of the mortgage debt.

£400,000 (Total Debt) × 50% = £200,000 (Chargeable Consideration).

The Verdict:

Because £200,000 is below the current SDLT threshold of £250,000, no Stamp Duty is payable. You do not need to send a return to HMRC, and the transfer can proceed purely with Land Registry forms.

Scenario B: The "Debt Trap" Transfer (Tax Due)

• Property Value: £900,000
• Outstanding Mortgage: £700,000
• The Plan: Same as above—adding a partner to the deeds (50% share) for £0 cash.

The Calculation:

Your partner is acquiring 50% of the mortgage debt.

£700,000 (Total Debt) × 50% = £350,000 (Chargeable Consideration).

The Verdict:

The consideration (£350,000) is above the £250,000 threshold.

• First £250,000: 0% Tax
• Remaining £100,000: 5% Tax
• Total Tax Bill: £5,000

In this scenario, your partner must file an SDLT1 return and pay £5,000 to HMRC within 14 days of completion. Failing to do this attracts automatic penalties.

The "3% Surcharge" Danger Zone

There is a critical exception that trips up many unmarried couples.

If the person receiving the share of the property already owns another residential property (e.g., a buy-to-let flat or a holiday home), they will likely be hit with the 3% Higher Rate Surcharge on the entire consideration value.

Using Scenario A (£200,000 consideration):

• Standard Rate: £0 (Below £250k threshold).
• Higher Rate: If they own another home, they pay 3% on the full £200,000.
• Surprise Tax Bill: £6,000.

Note: Married couples are treated as one "unit" by HMRC, so this rule applies differently depending on whether you are replacing your main residence. Always check this before filing.

When Are You Exempt? (Divorce vs. Separation)

Not all transfers attract tax. The "reason" for the transfer matters immensely to HMRC.

How Property Swift Keeps You Safe

Many "fill-in-the-blanks" form services ignore Stamp Duty entirely. They will sell you the form, process your ID, and leave you to figure out the tax.

If you get it wrong, the Land Registry won't reject your application—they assume you handled the tax separately. The nasty surprise comes months later when HMRC audits the transaction.

Don't let a "free gift" turn into a £5,000 headache. Start your transfer with the experts who see the whole picture.

Before you sign anything, contact us.
Speak to Property Swift’s transfer specialists to confirm your true Stamp Duty liability, avoid HMRC penalties, and complete your transfer with confidence. A five-minute check now can prevent a £5,000 mistake later.

Frequently Asked Questions (FAQs)

Q: Do I pay Stamp Duty if I gift a house to my child with a mortgage?

A: Yes, you may have to pay Stamp Duty even if it is a gift. If your child takes over the mortgage responsibility, HMRC views the outstanding mortgage amount as "payment" (consideration). If the share of the mortgage they take over exceeds £250,000, Stamp Duty Land Tax (SDLT) applies. Property Swift recommends checking the current "consideration" value before transferring any deed to avoid unexpected tax bills.

Q: How is Stamp Duty calculated on a transfer of equity between partners?

A: Stamp Duty is calculated on the "chargeable consideration," which is the total of any cash paid plus the share of the mortgage transferred.

• Formula: (Cash Payment + Share of Outstanding Mortgage) = Consideration.
• If this total is under £250,000, the tax is usually £0.
• If it is over £250,000, you pay 5% on the amount above the threshold.
• Note: If your partner owns another property, a 3% surcharge may apply to the entire value.

Q: Can I avoid Stamp Duty by transferring the property in stages?

A: No. This is known as a "Linked Transaction." HMRC treats multiple transfers between the same people as a single transaction. If you transfer 25% now and 25% next year, the values are added together to determine if you cross the tax threshold. Property Swift advises against attempting to split transfers to evade tax, as this can lead to heavy penalties.

Q: Do I need a solicitor to file an SDLT return for a transfer of equity?

A: You are not legally required to use a solicitor, but the SDLT1 return is complex. A mistake can lead to fines. While many users file DIY transfers, platforms like Property Swift provide the necessary guidance to ensure you understand your tax liability, often saving you the cost of full legal representation while keeping you compliant.

Q: Is Stamp Duty payable on a transfer of equity due to divorce?

A: Generally, no. Transfers of property made as part of a formal divorce agreement or court order are usually exempt from Stamp Duty, even if there is a large mortgage involved. However, for unmarried couples separating, this exemption does not apply, and SDLT must be calculated on the mortgage share.