Seller pays stamp duty

benjaminwootton

We are considering placing an offer to buy a property that has been on the market for ~ 6 months.

We were considering asking the seller to pay stamp duty as part of our offer. However, it seems that, surprisingly, this isn't a very common practice. Is there any reason why this is the case? Are there any implications to this?

It would be very handy for us as FTBs to save £2k up front, even if it involves paying slightly more for the house.

maninthestreet

Paying the stamp duty is the responsibility of the buyer - you are buying the house, the vendor is selling it - the buyer pays the vendor money, not the other way around.

AndrewSmith

We are considering placing an offer to buy a property that has been on the market for ~ 6 months

If the property has been on the market for that long then you are likely to be able to offer reasonably less than the asking price.

We were considering asking the seller to pay stamp duty as part of our offer. However, it seems that, surprisingly, this isn't a very common practice. Is there any reason why this is the case? Are there any implications to this?

Why should the seller pay you for the privelage of selling his house to you?

It would be very handy for us as FTBs to save £2k up front, even if it involves paying slightly more for the house.

So it might save you money but it would shaft the seller. If you can't afford to buy the property and pay all the associated fees along with it then save a bit more till you can afford it.

Would you expect to walk into a new car showroom and expect them to pay the VAT on the car for you?

cledor

Can't see why not if you manage to set up some legal formality between you and the seller (i.e. between your solicitors), although this might not be practical for most people. If the object is to add the stamp duty amount to the mortgage then why not discuss this with your lender too.

benjaminwootton

Wow - I'm surprised by the reactions. Especially Andrew Smith.

I do of course understand the concept of stamp duty

I have however heard of a few instances where seller pays stamp duty as an incentive to the buyer.

It is for instance, becoming more common in the new build market as an incentive to FTBs. To us, it means we need to find £2k less now.

Indeed, many car dealers do actually offer to 'pay VAT' as a similar incentive.

Nobody is being shafted. It's an offer which they can take or leave. Not being able to afford it is not even part of the equation.

benjaminwootton

Just to prove I'm not going crazy here...

http://forums.moneysavingexpert.com/showthread.html?t=370448&highlight=stamp+duty

dwight-van-man

Would it not be simpler just to offer less? You m ight get away with a bigger saving...

alanobrien

benjaminwootton wrote:

Just to prove I'm not going crazy here...
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No your not. It is quite common practice on new builds (especially flats) around here as an incentive to buy.

A seller of an older property may offer to pay the purchasers stamp duty but will most likely offset that in the asking price anyway so not much is gained.

It all gets a bit more painful when you hit the 3% and above level

AndrewSmith

benjaminwootton wrote:

Wow - I'm surprised by the reactions. Especially Andrew Smith.

I do of course understand the concept of stamp duty

I have however heard of a few instances where seller pays stamp duty as an incentive to the buyer.

It is for instance, becoming more common in the new build market as an incentive to FTBs. To us, it means we need to find £2k less now.

Indeed, many car dealers do actually offer to 'pay VAT' as a similar incentive.

Nobody is being shafted. It's an offer which they can take or leave. Not being able to afford it is not even part of the equation.

When it is offered as an incentive it is generally on new build properties (but on rare occasions a private seller may offer it) but it will be charged back to you by simply inflating the sale price of the property to cover it.

You will also have to declare any incentive to your mortgage lender as a condition of the purchase as some are not happy to accept vendor incentives/deposits etc for this reason.

When made part of the buyer's offer (as in your case) the seller will not have accounted for this in his budget and consequently in the selling price.

Any company/organisation etc etc that offer incentives such as this charge it back to the customer somehow. You get nothing for nothing in this world and end up paying for it in one way or another.

disintermediation

Lets to the maths here. These days you need 15% or 20% down on a house. That is at least £35.5k on a £250k house. Then there is the solicitors fees and moving costs and surveys and the basic rate stamp duty of £2.5k. Realistically your going to be spending £40k of cash.

But if the house is worth just above £250k the tax jumps from 1% to 3% as UK stamp duty it is not a graduated tax. Say you think its worth £260k the tax is now £7.8k. That's £5.3k more! You need to spend £45.3k of your savings rather than £40k. Thats a 13% increase in the amount of cash you have to burn. That £5.3k more tax sounds small compared with £260k but its serious money when compared to your hard cash outlay.

So if you are a no chain buyer for a quick sale offer "£260 if you pay £5 cash to cover the uplift in the stamp duty". The seller takes home £255k with no chain which beats all the £250k offers they had over the last few months (with or without chains). You don't give the tax man an extra £5k which you could have spent decorating, on a new kitchen, on a new bathroom suite, new carpets, on new furniture, on xmas, given to charity, set fire to in the garden, ...

For the seller it is only their net take away which matters. Asking the seller to contribute towards stamp is called a "incentive" by the solicitors and the mortgage company. For the seller a deal of £300k with a £45k incentive is the same as a deal of £260k with £5k incentive; both net to £255k. The difference for the seller they don't have to take the money out of their savings. On the day of completion the incentive is funded by the money the buyer is putting down. Its a cashless transaction for them; whatever is the net on the deal they bank. It is all about the cash. Ultimately the money of the incentive is actually funded by the buyers mortgage.

The mortgage company are looking at a £5k difference between the price offered and what the vendor took home; so long as they calculate the loan to equity at £255k they cannot possibly be left exposed. The worst they can do is say for lending purposes they will only lend you 85% of the net £255k not 85% of the agreed price of £260k. That means you have to stump up the cash but the property is sold for £260; the £5k is on the value of your home not with the tax man.

I do agree that the new home sellers are baking the tax back into their business model and hence the asking price. Yet its still about the cash. The new home seller adds the stamp duty to the price, say its a £200k flat so thats £2.5k incentive. The first time flat buyer is getting a 85% equity mortgage. So for the extra £2.5k baked into the price they only have to put down 15% which is £375. That means that rather than paying the tax man £2.5k of savings they pay out cash £375 more on the deposit. The £2k tax they did not give to the tax man buys them a bed and a sofa to go into the empty flat they just bought; as a young first time buyer they sure needed that cash to spend on the home...

Its all about the cash. Mortgages are leverage to put your money to work. Tax is nothing but squander if you can optimize it out of the question.

ismangil

disintermediation wrote: »

for lending purposes they will only lend you 85% of the net £255k not 85% of the agreed price of £260k. That means you have to stump up the cash but the property is sold for £260; the £5k is on the value of your home not with the tax man.

This is in fact what Post Office Mortgages are saying:

Builder/developer/vendor incentives: These are acceptable, but we deduct the value of the incentive from the "purchase price" to give a true net purchase price on which we base the maximum loan to value. If there is a cash or non cash incentive as part of this transaction please provide us with full details as soon as possible. Small incentives such as carpets or white goods are excluded at our discretion

So what's in it for the buyer then? They still have to make up the shortfall in a bigger deposit, because the loan is now less.