Stamp Duty Buying Parents House

swwchris

Hi I have been searching the forums for a couple of days, but keep getting conflicting answers.
(1) My parents house has been valued at £270000 by the mortgage company
(2) I am taking a £175000 mortgage to buy, which when put with the equity on my current house (which has sold), means I am paying £209500 for my parents house
(3) There has been some talk about gifted deposits but I am not to sure what exactly this means?

The moving will take place at the same time, with a small chain =

First time buyers of my house

Me buying parents house

Parents buying new bungalow with the £209500 I pay them

There is no other money changing hands

How much Stamp Duty will I have to pay? Some say pay on the £209500 paid, some say on the £270000 value. I have found the form which is completed by the solicitor and guidance notes and these say -

Form SDLT1

Question 10 = What is the total consideration in money or money's worth, including any VAT actually payable for the transaction notified

The notes say =
For most transactions the figure shown at question 10 will be the purchase price and it will be paid wholly in monetary form.
See notes on question 12 for notifying a consideration which is other than
cash, in particular where property is transferred subject to a debt.

Can anyone help with a definitive answer

CLAPTON

you pay stamp duty on the actual value of the house and not the price you pay your parents... so even if they gave it to you for nothing you would pay stamp duty based on the realistic value.

RLH33

I'm not sure that Clapton's comments are correct. I am pretty sure that stamp duty due is based on the purchase price of the property. Any other way of working it out would be too complicated and would need a professional valuation of the property i.e. not by any old EA, in order to get a true valuation.

Speak to your solicitor - they should be able to advise you.

Richard_Webster

My understanding is that SDLT is paid on the price actually paid. Obviously if any money is changing hands behind the scenes that has to included in the calculation because otherwise there is fraud on HMRC. However if there is effectively a gift of the difference between the actual value and the price paid then there could be other tax implications, e.g. capital gains tax.

Also lender will require an undervalue indemnity policy to cover it against the possibility that the parents go bankrupt and their creditors seek to set aside the undervalue transaction. Parents' virtuousness is nothing to do with the point - no good saying "My parents won't go bankrupt." Lenders have this as an objective requirement in all cases.

chickmug

Stamp Taxes helpline on 0845 603 0135.

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I used to get some 'not the normal' situations arise and called the helpline. Usually other parts of the HMRC are very helpful but for some reason calls to this department were the exception. But you need to get the information right before acting.

swwchris

Thanks all for the help so far.

chickmug - I may give the number a try tomorrow.

We have spoken to our solicitor and she has advised -

We should be able to pay the tax on price paid.

They then spoke to the bank to clarify how much is being paid

The bank then contacted us because some number crunching needs to be done in relation to LTV - normally LTV is calculated on price paid and not value! So this has to be sorted with the bank including some kind of document which my parents must sign, confirming the status of the monies being paid. I think this is close to Richards information ref Undervalue Indemnity Policy.

The amounts being gifted are being recorded with relation to Capital Gains and/or inheritance tax.

Any advice is greatly appreciated and I will post any other developments as they happen

theartfullodger

You are paying your parents £209,500 re. the house transaction (mortgage of £175,000 & £34,500 equity from your existing house).


House is worth £270,000 so they are gifting you £60,500 worth of it by accepting a below-market price.


So the total consideration is £270,000 (equity £34.5k, mortg £175k, gifted share £60.5k). You should declare that to HMRC for SDLT. Anything else would, IMHO, be fraudulent: I may of course be wrong.


Cheers!


Lodger

PS Is my math right??

00ec25

the definition of "total consideration" is as your solicitor says - it is based on the price paid based on the exact circumstances you describe
the following are extracts from HMRC who know rather more about it than a public forum! The balance of the "value" of the property is being gifted to you without consideration (either in the form of pure money or in non money form) being given by you to your parents in return - therefore this gift is ignored for SDLT.

However, as pointed out the total value of the property, including the "gifted deposit", must be recorded for the purposes of IHT
Proviso - this assumes it is your parents only home (ie. not a second home they own) which they have lived in for as long as they have owned it, then its sale by them to you is exempt from CGT despite the fact they are gifting you some of its value. If it is not their main home then CGT will be payable by them.

Quote 1
Property given as a gift read here
If the property is received as a gift there's no SDLT to pay, so long as there's no outstanding mortgage on it. But if the person who receives the gift takes over some or all of an existing mortgage, then SDLT may be payable if the value of the mortgage is over the SDLT threshold.

You are not taking over your parents mortgage, you are getting your own so this caveat does not apply

Quote 2
Basic definition of consideration read here
The total value on which SDLT is payable is known as the ‘chargeable consideration’. In a straightforward deal such as the cash purchase of a house, the chargeable consideration is simply the price paid for the property. Deciding what counts as the chargeable consideration can be more complicated for other transactions. SDLT does not apply if the property is given and received purely as a gift because in this situation there is no chargeable consideration.

the consideration you are paying is £209,500 - the balance is a gift and is ignored

sidefx

Not fraudulant imo.

If the property is gifted to you it only becomes liable for inheritance tax, if your parents die within 7 years as far as I know

Richard_Webster

The bank then contacted us because some number crunching needs to be done in relation to LTV - normally LTV is calculated on price paid and not value!

Some lenders will look at value (as opposed to price) in cases like that - I have known Nationwide, for instance, lend over 100% of price being paid where there were family gifts involved as they were satisfied that the amount being loaned was still within the loan to value ratios. Obviously they need to have the precise circumstances properly explained to them and they will double check the valuation with their valuer as it will not be an arms length agreed figure.