Reply to: Stam duty on a property bought under market value

[Ardesco]

Get 3 estate agents to come and have a look at the house and value it at £200k because it needs extensive modernisation.

Buy it at £200k and stick two fingers up at HMRC.

The silly thing is that if the doom sayers are right the house will only be worth £200k in 2 years anyway

[b0redom]

Simple answer:

Divorce your Mrs
She buys the house
Remarry your Mrs
She gifts the house to you *















*or may run away with the milkman and £200k profit

[TheFaQQer]

If you are connected, then the solictor has to declare it. You then have to declare the value of the asset.

If you are not, then it's not a problem.

If you didn't pay tax on the perceived value of it, then every parent close to death would "sell" their assets to a relative for £1 and pay no tax on them at all.

[Royston Vasey]

Your solicitor will have to answer this question when completing the SDLT 1 form

SDLT1 Q57. Purchaser and vendor connected.

You must answer this question.

Answer ‘Yes’ if any purchaser is connected with any vendor; if not then answer ‘No’. For a full

account of connected persons see section 839 Income & Corporation Taxes Act 1988.

Legally he will have to answer "yes" which may lead to HMRC checking out the market value of your purchase.

[BrilloPad]

There are people who sell the house for £1 and the carpets and curtains at £599,000

I think the tax collectors get a bit upset by this and come round and stab you mind.

If you were talking about £510k - divided 499/11 you might get away with it.

From what I have read so far looks like this 400 is divided 200/200 - half now half later.

[ASB]

There are people who sell the house for £1 and the carpets and curtains at £599,000

I think the tax collectors get a bit upset by this and come round and stab you mind.

I seem to recall one Peter Mandelson paid just under a stamp duty threshold for his property and quite a lot for the fixtures and fittings. I am sure it was all perfectly above board and they were indeed capable of an independent valuation of what he paid for them.

There is one department which solely looks at property sales close to SDLT thresholds.

[ASB]

Thank you, ASB, that document goes some way to explaining where open market value is declared, rather than the transaction value. However, I don't think any of the situations in "Requirement to notify the market value of a property at question 10" really apply to my situation, so it's still unclear what will be due.

I will budget for the higher amount and if the deal goes forward and only the lower amount ends up being due then I will consider it a bonus.

It might be worth discussing the transaction with a solicitor or accountant, there is after all 10k at stake. There are so many reliefs and exemptions that it might be possible to structure the transaction differently.

If does also say:

"Note: a gift of an interest in land does not itself constitute a chargeable transaction for stamp duty land tax."

It might just be possible for them to gift you half, you acquire the other half at market value and the consideration of that be the amount subjected to SDLT. There is obviously some sort of issue because the two transactions are part of one transaction but you never know your luck.

[DimPrawn]

There are people who sell the house for £1 and the carpets and curtains at £599,000

I think the tax collectors get a bit upset by this and come round and stab you mind.

[MrRobin]

Thank you, ASB, that document goes some way to explaining where open market value is declared, rather than the transaction value. However, I don't think any of the situations in "Requirement to notify the market value of a property at question 10" really apply to my situation, so it's still unclear what will be due.

I will budget for the higher amount and if the deal goes forward and only the lower amount ends up being due then I will consider it a bonus.

[ASB]

Quite! So you would expect to pay £2,200 in duty, correct? Why is it different for me? Because I'm a connected person? Please someone show me a document which lays out rules regarding connected persons and stamp duty.

If they would sell it to any tom dick or harry at 200k - then yes I would expect to pay 2k in stamp duty. Because it is not a 400k asset, it is a 200k asset.

If they would sell it to one of a limited set then I would expect to pay stamp duty on 400k - or whatever an independent valuation was. It's not different because you are connected. It is because there is an element of gift.

Here are some details of the calculation, I don't think it says in black and white what you are looking for, but it is quite clear that there is a requirement to notify the open market value, the consideration and that tax is playable on the open market price.

http://www.hmrc.gov.uk/sdlt6/fill-forms/calculation.htm

[MrRobin]

Whoa! Apologies if I came across condescending and dismissive, that’s not the what I was trying to do… some of me was playing devil’s advocate and trying to justify views with comparisons (i.e. the VAT). I can hack a debate, but part of debating is disagreeing with others, right?

If the correct and legal amount that is due is the higher amount then I am happy to pay my tax, but if I’m over paying because I haven’t planned properly or investigated all options then I will be kicking myself. There is a very clear distinction between someone who fraudulently falsifies information in order to avoid tax and someone who plans ahead and uses knowledge of the system to reduce their liability. I was a bit upset I was being labelled as the former.

If no then the pen market value of the house is 220k not 400k.

Quite! So you would expect to pay £2,200 in duty, correct? Why is it different for me? Because I'm a connected person? Please someone show me a document which lays out rules regarding connected persons and stamp duty.

[ASB]

I disagree. Why should my good fortune be regarded as fraud?! If you went to buy an item in the shop priced at £100 but when you went to the till, it was reduced to £50, would you say "hold on, I should pay the VAT on the £100, otherwise it is fraud!"

It's not really your good fortune. That's why. Tell you what, since there is such a good deal going I'll bid 220k cash, I'll pop it round to your relative tomorrow. Would they have any reluctance in this? If no then the pen market value of the house is 220k not 400k.

There is also another issue. That is the value of your relatives estate. In the event that they die in the next 7 years the estate is likely to be assessed for IHT on the basis of the asset being disposed of at the "correct" price. [Essentially the difference between the 200k and 400k will be treated as a gift].

[tim123]

Why is it fraud? We're not buying at a lower price just in order to avoid tax, we're doing it to take advantage of a generous offer. If the tax form says 'what was the value of the transaction?' and I put £200k, where is the fraud in that?!.

You might be right, but you still have to pay the tax.

You'd still have to pay the tax if the property were gifted to you for nothing. The rational behind this is entirely because you are connected to the seller. If this offer of buying it at that price is genuinely available to an unconnected person, then the tax is based upon actual price, but if there is an element of gift in the price then the tax is based upon market value.

And I'll think you'll find it was the Tories who introduced this rule.

tim

[BrilloPad]

Why is it fraud? We're not buying at a lower price just in order to avoid tax, we're doing it to take advantage of a generous offer. If the tax form says 'what was the value of the transaction?' and I put £200k, where is the fraud in that?!

I would appreciate a link to a HMRC doc if you know this is true. Only thing I can find about connected persons under SDLT is about when relatives buy a property together, and the total tax due is on the combined value - i.e. if I and my brother buy a £300k property, we don't pay £150k @ 1% each, we pay £150k x 3% each even though 150 is under the 3% band, because 300 is over.

Why is a 400k house going for only 200k? Surely there is some other sort of consideration going on here?

If it is clearly 200k, why start a thread on this?

Sometimes you can get away with dividing property into house and fixtures/fittings. But HMRC might look more closely at such deals.

[malvolio]

I disagree. Why should my good fortune be regarded as fraud?! If you went to buy an item in the shop priced at £100 but when you went to the till, it was reduced to £50, would you say "hold on, I should pay the VAT on the £100, otherwise it is fraud!"

You are clearly not up to speed on the logic here. Given a choice of charging you 1% of £200k or 3% of £300k, which do you think those venal NL-managed halfwits will pick? No it's not fair, but nor is IR35 or FBT or Council Tax or having spent some one-eyed Scots git spouting about Prudence while spending £1600bn in ten years so badly we have no reserves left to tackle the onrushing recession.

If you can't hack the debate, stay out of it. Nobody's saying your position is wrong, but the actual answer is as I stated - it's nothing to do with monies paid, its about perceived worth.