Does taking over a co-owner’s share of a commercial property include part of the mortgage for SDLT?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) on a transfer of a share in a property should be based only on the cash paid to the outgoing co-owner, or whether it should also include a share of the mortgage. The answer depends on the legal effect of the mortgage and any security arrangements affecting the outgoing owner.

This issue commonly arises where one individual buys out another’s minority share in a commercial property, but the mortgage was in only one person’s name. In that situation, the key question is whether the outgoing owner was actually being released from a real debt or liability. If they were, HMRC may treat that release as chargeable consideration. If they were not, there may be scope to amend the SDLT return and reclaim overpaid tax.

The Question

A buyer acquired a minority co-owner’s share in a commercial property. The property was subject to a mortgage, but the mortgage account itself was in the buyer’s sole name rather than in joint names. On the transfer, SDLT was calculated by adding together:

• the cash paid for the outgoing owner’s equity, and
• a proportionate share of the outstanding mortgage, on the basis that the outgoing owner was being released from a security arrangement affecting their share.

The buyer wanted to know whether that mortgage-related amount really formed part of the chargeable consideration for SDLT, given that the outgoing owner had never been a named borrower under the mortgage.

Nick’s Explanation

Nick’s main point was that the mortgage element is not included automatically just because the property was charged. The legal question is whether the outgoing owner was under a genuine financial liability that the buyer took over or from which the outgoing owner was released.

In anonymised form, his explanation was:

“The key question is whether the security charge carried real legal weight. If there were a default, would the outgoing owner actually be liable for that proportion of the debt, or was the arrangement more procedural and without real financial responsibility? If there was no real liability, HMRC should not treat that amount as chargeable consideration.”

He also noted that if SDLT had been calculated by reference to the full stated consideration, the arithmetic needed checking carefully. For a non-residential transaction, the tax bands must be applied correctly to the total chargeable consideration.

His practical focus was therefore on the underlying documents. In particular, the wording of the charge, restriction, indemnity, covenant or other security document would determine whether the outgoing owner had a real debt-related obligation.

The Law

SDLT is charged on “chargeable consideration” for a land transaction under the Finance Act 2003.

Where consideration includes debt, the legislation can treat the release, satisfaction or assumption of debt as part of the consideration given for the land.

The relevant provision quoted in the advice was:

“Debt as consideration

8(1) Where the chargeable consideration for a land transaction consists in whole or in part of:

(a) the satisfaction or release of debt due to the purchaser or owed by the vendor, or

(b) the assumption of existing debt by the purchaser,

the amount of debt satisfied, released, or assumed shall be taken to be the whole or, as the case may be, part of the chargeable consideration for the transaction.”

Although the email referred to the Finance Act 2008, the SDLT charging code is contained in the Finance Act 2003, and the governing principle is that debt can count as consideration where, in substance and law, the purchaser assumes liability or the seller is released from liability.

For non-residential or mixed property, SDLT is charged at the non-residential rates in force at the effective date of the transaction. Whether a property is residential, non-residential, or mixed depends on the statutory definitions in Schedule 4ZA and related provisions of the Finance Act 2003.

Where a taxpayer argues that a dwelling was not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case confirms that disrepair or inconvenience will not usually be enough. The condition must be serious enough to take the property outside the concept of a dwelling at the effective date. That point matters in residential-rate disputes, although the present scenario concerns a commercial property.

Analysis

The SDLT analysis in a case like this can be broken down into four steps.

First, identify the nature of the property and the correct rate table. If the asset transferred was a commercial property, the non-residential SDLT rates apply. That determines the tax calculation once the chargeable consideration is known.

Secondly, identify all elements of consideration actually given for the transfer. Cash paid to the outgoing co-owner is plainly consideration. The more difficult issue is the mortgage-related amount.

Thirdly, ask whether the outgoing owner was under an existing debt or legally enforceable obligation that was released on completion. This is the critical point. There is a difference between:

• a person being a co-owner of charged land, and
• a person being personally liable for the debt secured on that land.

If the mortgage was in the buyer’s sole name, that strongly suggests the outgoing owner may not have been a borrower at all. If so, there may have been no personal debt of the outgoing owner to be assumed or released.

However, that is not the end of the matter. Sometimes a non-borrowing co-owner signs a separate legal charge, deed of consent, indemnity, guarantee, or other security document. In some cases, that document creates a real obligation with financial consequences. In others, it merely acknowledges the lender’s security over the land without creating personal liability for the debt.

Fourthly, examine the legal effect of the security arrangement. Questions to ask include:

• Was the outgoing owner a named borrower under the mortgage deed or loan agreement?
• Did the outgoing owner covenant to repay any part of the debt?
• Did the outgoing owner give a guarantee or indemnity?
• Could the lender have sued the outgoing owner personally for the relevant share of the debt if there were default?
• Or was the document limited to allowing the lender to enforce against the property, without personal recourse against that owner?

If the outgoing owner was genuinely being released from a financial liability, HMRC is likely to argue that the amount of debt released forms part of the chargeable consideration. If not, the buyer has a stronger argument that only the cash paid for the equity should have been taxed.

On the figures discussed in the source material, the disputed point was whether a proportion of the outstanding mortgage should have been added to the cash payment for the share transfer. If that mortgage share should not have been included, the SDLT paid may have been too high. But that conclusion depends entirely on the legal documents, not on the fact that the property happened to be mortgaged.

Outcome

The practical conclusion is this: a proportion of the mortgage is not automatically part of SDLT consideration just because the outgoing co-owner’s share was subject to a charge. It will only count if the transaction involved the release, satisfaction, or assumption of a real debt or legally meaningful financial liability affecting that person.

If the outgoing owner was never personally liable for the loan and the security arrangement did not impose any real financial responsibility, there may be grounds to amend the SDLT return and recover overpaid tax. If the documents show an enforceable liability from which the outgoing owner was released, HMRC is more likely to treat that amount as chargeable consideration.

Practical Steps

If you are reviewing a similar SDLT calculation, the most useful next steps are:

• obtain the transfer deed, mortgage deed, loan agreement, and any separate charge, indemnity, consent, or guarantee signed by the outgoing owner;
• check whether the outgoing owner was a borrower, guarantor, indemnifier, or otherwise personally liable;
• identify whether the lender had rights only against the property, or also against the outgoing owner personally;
• recalculate the SDLT using the correct rate table and only those amounts that legally qualify as chargeable consideration;
• check whether the amendment or refund claim is still within HMRC’s time limits;
• keep a clear written explanation, supported by the documents, in case HMRC asks why the mortgage element should be excluded.

Where the legal documents are unclear, the wording matters a great deal. A careful document review is usually the deciding factor.

Conclusion

When one co-owner buys out another, SDLT is based on the real chargeable consideration. Cash paid for the share is included. A mortgage-related amount is included only if the outgoing owner was actually being released from a real debt or liability. If the mortgage was in the buyer’s sole name and the outgoing owner had no meaningful personal liability, there may be an SDLT overpayment to correct.

Legal References Used

• Finance Act 2003
• Finance Act 2003, provisions on chargeable consideration
• Finance Act 2003, non-residential SDLT rate provisions
• Finance Act 2003, Schedule 4ZA
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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