How would a home swap affect stamp duty and inheritance tax?

theguardian.com:

Q I’m hoping you can shed light on an odd situation. My mother-in-law is selling her home and, with the proceeds, is buying a new one for £700,000. My wife and I and our children will be moving into this new house, and my mother-in-law will move into our current home, which is valued at £600,000. We plan to formalise the swap by exchanging deeds. Are we subject to any land tax or inheritance tax as the difference between the properties is £100,000? There are no mortgages on either property as we all own our properties outright.RG

A You will need to do more than just exchange deeds to formalise the swap. As with a normal house purchase, you will each need to use a solicitor to go through the standard conveyancing process. And you will have to pay stamp duty land tax (SDLT) on the market value of the property you are acquiring. Except that, according to the team of conveyancing solicitors at GB Law, because the properties differ in value, you will both pay SDLT based on the highest value of the two properties (so the value of your mother-in-law’s new home). The SDLT would be based on the market value of each property if you “paid” your mother-in-law your home worth £600,000 plus £100,000 in cash as a balancing payment.

If you don’t make that balancing payment, the unpaid £100,000 would count as a gift for inheritance tax purposes. So if your mother-in-law were to die within seven years of making the gift (ie when you swapped houses), there would be tax to pay.

An alternative approach – which doesn’t involve balancing payments or tax bills – could be simply to swap homes without transferring ownership. But it would be wise to get legal advice on the implications of doing that.