Do you pay SDLT on a co-owner’s share of a mortgage if the loan was only in your name?

Introduction

A common SDLT question arises when one co-owner buys out another person’s share in a property, but the mortgage was never in both names. The issue is whether the buyer must include part of the outstanding mortgage as chargeable consideration, even though the departing co-owner was not a named borrower under the loan.

This matters because SDLT is charged on the consideration given for the transfer. If part of the mortgage is wrongly included, the tax bill may be too high. If it is correctly included, a refund claim is unlikely to succeed.

The Question

A taxpayer and a minority co-owner held a commercial property as individuals. The taxpayer later bought the other owner’s minority share. There was an outstanding mortgage over the property, but the loan documentation was said to be in the taxpayer’s sole name rather than in joint names.

On the transfer, the solicitor treated the SDLT consideration as:

• the cash or equity paid for the departing owner’s share; and
• a proportionate share of the outstanding mortgage, on the basis that the departing owner was being released from that burden.

The taxpayer wanted to know whether that mortgage element should really have counted, given that the other owner had never been a named borrower and had not made mortgage payments.

Nick’s Explanation

Nick’s key point was that the answer depends on the legal effect of the transfer, not simply on who made the mortgage payments in practice.

In anonymised form, his reasoning can be summarised like this:

Where one person acquires another person’s interest in land, SDLT is usually based on the total consideration given. That can include cash and also the assumption of debt or release from liabilities connected with the property. The fact that only one party has been making the mortgage payments does not by itself decide the SDLT treatment.

The critical question is whether, as part of the transfer, the buyer is treated as taking the property interest subject to secured debt in a way that gives value to the seller. If so, HMRC may regard that debt element as chargeable consideration.

Equally, if the departing co-owner was never personally liable to the lender and is not being released from any actual debt obligation, there is an argument that no debt assumption has taken place for SDLT purposes merely because the property remained charged.

The Law

The starting point is the Finance Act 2003.

• SDLT is charged on land transactions involving chargeable consideration.
• Chargeable consideration includes money or money’s worth given directly or indirectly for the subject matter of the transaction.
• The assumption of existing debt, or taking property subject to debt, can amount to chargeable consideration.

In broad terms, where a buyer takes over responsibility for a mortgage, or where a seller is released from liability connected with the property, that can count as consideration for SDLT.

However, the legal analysis is fact-sensitive. It is necessary to distinguish between:

• personal liability under the mortgage loan;
• the existence of a legal charge over the property;
• beneficial ownership of the property; and
• whether the transfer actually releases the seller from a debt or other enforceable obligation.

For commercial or mixed property, the non-residential SDLT rates apply. On the figures described, the tax calculation appears to have been based on the non-residential rate bands in force at the time.

Analysis

The issue can be worked through in stages.

First, the cash paid for the minority share is plainly chargeable consideration. There is usually no dispute about that part.

Second, the mortgage position must be analysed carefully. A property can be charged to a lender even where only one co-owner is the named borrower. In some cases, the non-borrowing co-owner may still have signed documents consenting to the charge or postponing rights. That does not automatically mean that person was personally liable for the debt.

Third, if the departing owner was not a borrower, the question becomes whether the transfer nevertheless involved the buyer giving consideration by taking that share subject to secured debt. HMRC may argue that where the seller’s interest is transferred subject to a charge, the debt burden affecting that interest forms part of the consideration. That is especially arguable if the seller’s interest could not be transferred free of the charge and the transaction leaves the buyer with the whole charged property.

Fourth, the taxpayer’s stronger argument is that there was no assumption of the seller’s debt if the seller never owed the lender anything personally. If there was no personal covenant by the departing owner, no release by the lender, and no novation or transfer of debt obligation, then adding a proportion of the mortgage may overstate the consideration.

Fifth, the existence of a restriction, charge, or security entry at the Land Registry does not by itself prove that the departing owner was personally indebted. It may simply show that the property interest was encumbered. That distinction matters.

Sixth, the practical result depends on the transaction documents. The key evidence would usually include:

• the transfer deed;
• the mortgage deed and any related security documents;
• any occupier’s consent, deed of postponement, or consent to charge signed by the departing owner;
• the TR1 or equivalent transfer wording about consideration;
• completion statements; and
• any lender correspondence confirming whether the departing owner was ever a borrower or being released from liability.

If those documents show that the departing owner was actually liable in some way and was released on completion, HMRC would have a stronger basis for including the debt element.

If they show that the mortgage was solely the buyer’s debt throughout, and the seller was merely transferring an already-encumbered beneficial or legal share without any release from personal liability, there may be grounds to argue that only the cash paid should have been taxed.

The fact that the departing owner never contributed to capital or interest payments is not decisive. SDLT looks at the legal consideration for the transfer, not who informally bore the economic cost before completion.

Outcome

A proportion of the mortgage is not automatically included in SDLT just because the property was charged and one co-owner sold their share.

If the mortgage was genuinely in the buyer’s sole name throughout, and the departing co-owner was never personally liable and was not being released from any debt obligation, there may be a credible argument that the mortgage element should not have been included in chargeable consideration.

But the position cannot be confirmed from headline facts alone. The legal documents are critical. In many buyout cases, the SDLT result turns on the exact wording of the charge, transfer, and any consent or release documentation.

Practical Steps

If you are checking whether SDLT was overpaid on a co-owner buyout, the sensible next steps are:

1. Obtain the mortgage offer, mortgage deed, and any supplemental security documents.
2. Check whether the departing co-owner was a borrower, guarantor, or party to any covenant to the lender.
3. Review the transfer deed to see how the consideration was described.
4. Check the SDLT return and calculation submitted on completion.
5. Identify whether the lender formally released the departing owner from anything on completion.
6. Compare the legal position with the amount of SDLT paid.

If the return included a mortgage proportion that was not legally chargeable consideration, an amendment or repayment claim may be possible, subject to the statutory time limits and the exact procedural route available for the transaction date.

Conclusion

When one co-owner buys out another, SDLT is charged on what is actually given for the transfer. Cash paid is included. A mortgage element is only included if, on the true legal analysis, the transaction involves assumption of debt or release from liability that counts as chargeable consideration. If the loan was solely the buyer’s debt all along, that point deserves close review before accepting that part of the mortgage should have been taxed.

Legal References Used

• Finance Act 2003
• Finance Act 2003, provisions on chargeable consideration for SDLT
• Finance Act 2003, provisions dealing with debt as consideration in land transactions
• HMRC SDLT guidance on chargeable consideration and assumption of debt

This page was last updated on 22 March 2026.

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