1% Stamp duty on residential property at £256k

[sarah481]

Hello all, I'd be grateful if someone could give me some advice (and tell me who you are) as I've had contradictory advice from two different solicitors. I guess an accountant may be more the person to ask.

We have had an offer accepted in principle at £256k but we can only afford this if we pay stamp duty at 1% of 250k. This is known by the vendor. We were going to agree to buy fixtures and fittings as well but on a 3 bed semi I can't see this legitimately reaching £6k and I know you have to specify each object and its value. We are keen not to do anything dodgy. There is a greenhouse and shed, carpets, curtains, dining table etc.

The vendor has now suggested that we also pay her solicitors fees and/or estate agency fees to make it up to 256. I assumed this would not be legal as clearly the only reason we would do this would be to avoid the stamp duty. however, her solicitor has advised that it is perfectly legal as long as we pay cash. What is the position please? I'd be grateful for a quick response!

Many thanks
Sarah

[AvocadoK]

If you are paying £256k for a house, the stamp duty is 3%, regardless of HOW the £256k is paid. If part of the purchase 'price' is paying the solicitor's fees, it makes no difference, because the purchase price is the same. You might just as well say, I will pay £249k and throw in my car worth £7k - you are still paying £256k.

What the solicitor is suggesting is fraud. Report him to the Law Society.

AK

[sarah481]

Thanks, AK, for your response. Could I ask what you do? Are you an accountant?

It does not seem quite as clear cut as you say, according to this article in the guardian http://www.taxationweb.co.uk/forum/posting.php?mode=reply&f=11&t=31979 which states that at a recent tribunal before the General Commissioners of Income Tax on this very subject, it was implied that it would have been fine if the taxpayer had paid the fees directly to the estate agent after the purchase, rather than to the vendor. However the article also states that HMRC disagreed with this. I do agree that this makes sense, I was just surprised to hear that the vendor's solicitor approved it. I shall try and speak to him on Monday.

[AvocadoK]

Your link is to this page - can you try again so I can see the post or article you are referring to?

I am a chartered accountant and chartered tax adviser.

AK

[mullet]

This is it I think. Source http://www.guardian.co.uk/money/2009/jul/01/stamp-duty-avoidance

Q: I am buying a property for £500,000. The vendor wanted slightly more but I wanted to avoid paying an extra 1% in stamp duty so I am offering to pay his estate agent and legal fees. Will I still get clobbered for the extra tax or are these costs exempt? TB-K

A: You might not get clobbered for the extra 1%, but you need to be very careful how you approach making payment. At a recent tribunal before the General Commissioners of Income Tax on this very subject, and coincidently for the same amount, a taxpayer lost his case because he paid the money for the estate agent's commission to the vendor.

However, it was strongly implied at the tribunal that if the buyer had paid the estate agent against an invoice it submitted after completion of the sale it would have been OK, and the extra 1% stamp duty would not have had to be paid.

That said, a strong implication at a tribunal does not mean that HM Revenue & Customs would take the same view. HMRC told me that however payment is made, paying the seller's estate agent fees means there is a "transfer of economic value from buyer to the seller" and this counts as part of the total amount of the transaction when calculating stamp duty.

[sarah481]

Thanks very much, yes, that is the article. I cut and pasted the link from the wrong tab. I tried to find the decision on the tribunal website (which said it had all decisions from 2003) but it wasn't there. I think the conclusion of the article is as you advise though, AK.

Just to clarify, we haven't actually offered £256k. We actually offered £249,999 plus chattels but she insists she wants £256k. There won't be £6k of chattels - herein lies the problem! I guess there's nothing we can do except hold out and hope she accepts our offer.

[AvocadoK]

Thanks for the link. I am not familiar with the case (if anyone knows the names, I'd be interested to know). However, it seems to be a hearing before the General Commissioners, and the throw away line at the end would certainly not be binding - or even influential - on HMRC.

Stamp duty land tax is charged on the consideration paid in money or money's worth. Agreeing to pay the vendor's bills is money's worth.

It is the purchaser (or his solicitor on purchaser's behalf) who has to sign and submit the land transaction return, stating how much has been paid in money or money's worth. If you knowingly make a false declaration, it is you who would be liable to penalties etc, not the vendor or her solicitor. So it is easy for them to make this sort of suggestion - they won't be the ones in trouble if it goes pear shaped!
AK

[sarah481]

Thank you very much for your time. I thought this must be the case as otherwise why not just pay her £124k and make up the rest by contributing to her new house / buying her a nice holiday / her groceries etc etc and avoid SDLT altogether! I just thought maybe there was for some reason an exception, when I heard that her solicitor approved it. Maybe he just told her that SHE wouldn't get into trouble for it, as obviously he only acts for her.

We'll just tell the agents (who have told us they have other people doing this and it is all above board) that we can have no part in it, and see if the vendor wants to break the chain of her onward move for the sake of a couple of thousand. It is frustrating as we really want the house but it is just out of our budget.

One more thing - I have heard (on the internet) about a loophole whereby you can 'legitimately' pay a company to buy a house then buy it from them somehow (maybe on a long lease?) to avoid paying SDLT? Am I right to assume this is also dodgy?

Thanks again,
SB

[AvocadoK]

Well, exactly!

Yes, I've seen some of these websites too. I don't know of any reputable accountants/solicitors who offer such schemes, and whilst I cannot tell you definitively whether they really work (I know they advertise 100% success rates but...) they seem a bit grubby to me. Also, I am doubtful whether it is cost effective at the £256k level - the fees usually mean you need to be looking at £500k to make it worthwhile.

Sometimes, tax avoidance schemes do appear to work when you study the detailed legislation, but the courts throw them out because the arrangement is just a sham. No-one can give you a cast iron guarantee that a scheme will work, because no-one can look inside the mind of a judge! Anyone that tells you differently is just trying to sell you something.

AK

[sarah481]

Yes they do seem 'grubby' I agree. Even if not at the moment illegal through the fault of the legislator, they are probably morally reprehensible! I guess it only remains to 'give to Caesar what is Caesar's'.
Thanks again
SB