Splitting title deeds and the potential tax implications?

Hi Ian,

You will already have paid SDLT on the original purchase, which would likely be more than the two properties separately.

CGT will only come into it once you sell from the base cost of the original purchase, but I am not sure how they will work out the share if you split the property and only sell one down the line unless they are identical?

Phil
You do not need to split the title until you sell and indeed you probably shouldn't try because you may want to grant and reserve easements, reserve rights to build notwithstanding interference with light, impose or give anti-nuisance restrictive covenants. You can't reserve rights over your own land.
You will have to pay the 3% additional SDLT on one or both properties (will either be your only home?). For CGT you will have to apportion the base cost between the two. If both are of similar size and condition then 50:50. Otherwise, you need a fair apportionment. Ask the mortgage valuer for their view.

Hello,
I have a freehold property with two parts:
-- HMO (with 6 rooms - 6 tenancies)
--basement one-bedroom flat (basement conversion completed some years ago with approval planning and Building Regulations) - 1 tenancy.

They both have their own water, gas, electricity and council tax.
Currently, both parts are under one title deed and mortgage free. I would like to split the title deeds into two so that I would get a better HMO mortgage rate (40%, 50% or 60% LTV) for the HMO part.
Could I just DIY myself via HM Land Registry or do I need to involve solicitors?
Many thanks,
Helen
P.S. I have no intension of selling the property at the moment.

if you are in the process of buying them then why not but them in the split that you want them? You can have it all built into one contract but the land registry would then split the title at the same time as registering the properties. Sorry if i am misunderstanding the OP's question and you do already own them

Reply to the comment left by Car at 09/08/2022 - 11:42
Hi, there is no legal reason why you shouldn't be able to mortgage part only of a title however lenders can be funny about this so sometimes you have to be creative and do something which, frankly, is pointless but does get you where you want to go.

For example, in this instance if you wanted to get a mortgage on the HMO but the lender wouldnt charge part of a title only you could perhaps do the following:

1. transfer the LEGAL TITLE to the one bedroom flat to you and a partner;
2. at the same time as completing this the partner enters into a declaration of trust with you stating that the EQUITABLE TITLE in the one bedroom flat is owned wholly by you. This means the transfer would not give rise to a CGT liability if you were not married and you are entitled to the flat;
3. immediately there after you instruct your partner under the declaration of trust to transfer their interest in the LEGAL TITLE back to you;
4. the solicitor then sends two applications together to the land registry effecively transferring flat out and back but this will split the title for you although you probably wouldnt be able to mortgage the flat for 6 months as lenders dont like title transfers less than 6 months old.

Hope this helps - ps this is not really a DIY job and you should use a solicitor.

Best,

Charles

Hi Charlies,

Thanks for the very useful information and I have not heard of EQUITABLE TITLE until your post. Is this the same as creating a leasehold for the flat and transfer it to my husband & myself, and back to me?

I am in the process of applying for an HMO mortgage. I won’t mind to add the one-bed flat to the mortgage but most of the HMO mortgages have a limit of 5 or 6 rooms. This is the main reason for wanting to split the title deeds –However, this is not ideal because I would then need to buy another landlord insurance for the flat (as well as the HMO part). So far, I only need to have ONE landlord insurance to cover the whole of the property. Using your method, I guess I don’t need separated landlord insurance for the flat.

Do you think a normal conveyancer (for the re-mortgage) could do this work or do I need a special property lawyer? Any idea of what professional fees are likely to be?

Many thanks for your help.

Hi, apologies for my delay in responding but I have only just found 5 minutes to check for a reply! Apologies.

No the equitable title is not the same as giving a lease. A property has both a legal and equitable title. They could be owned by the same person(s) but dont have to be. Think of it like a pair of shoes. You bought the shoes and they are yours so you could say you own the legal and equitable title to them. You're going away travelling and give the shoes to your sister and say that she can have them for so long as you allow her to hold them but she is holding them for you.

So far as everyone knows your sister is the legal owner of the shoes but you have the beneficial/equitable right to them as she holds them on your behalf. That's a bit simplistic but it works along that basis.

You would need a property solicitor but i wouldn't expect you to need to go to a City or large firm. Any high street firm should be able to do the job for sure. I don't know how much they would charge though but if you break down the process as i have that should give them an idea of what you want.

If it helps I may be able to deal with it but it depends on how quickly it needs to be dealt with plus I am probably a bit more expensive than the job really needs so you might find calling your local firms a better start.

Private message me if you get stuck.

Best,

Charles

Hi Charles,

Thanks for the very useful explanation.

For your step 2: "the transfer would not give rise to a CGT liability if you were not married and you are entitled to the flat;" -- we are married. Would this make a difference?

Many thanks.