Avoiding stamp duty?

merg

Hi,
I am currently selling my flat to buy a house. The house we like is through a friend of a friend. She was telling us that she avoided paying stamp duty through a legal loophole.

The figures work out like this:
Purchase of house £129,500 which would incur 1% stamp duty.
She is proposing that she accepts an offer of £124,950 with a separate (agreed and legally contracted) payment of £4550 which then means the property would sit below the £125,000 stamp duty threshold. Meaning no stamp duty for us.

The woman selling says she did this when she bought the property last year and all went smoothly. I am aware there is a book 'How to Avoid Stamp Duty' by Russell Eaton but I'm keen to hear what others experiences are. Has anyone done this and what, if any problems came up?

Thanks

drowningnotwaving_2

What would the payment be for? Unless you can say why you are paying her £4550 I would have thought the tax man would have smelt a major rat!

We sold our house to friends 4 years ago for £257,000. We sold it "officially" for £249,000 and our friends gave us the rest of the money in cash. Very dodgy I would guess but as it was friends we were able to do the transaction in brown envelopes.

I'm not sure how you'd get away with this but I'm not an expert. Having just moved again and been hit with a £10,000 stamp duty bill I would love to hear how you get out of paying it, but I would guess the answer is: you can't!

merg

I think the loophole is an extra payment for 'fixtures and fittings'. Legally the purchase price is for the building alone, then the 'extra payment' would be for things like the white goods, garden shed, light fittings etc.

It may be the extra payment is more like a privately negotiated thing therefore the tax man knows nothing about it as there's no record in conveyancing. I don't know.

Nenen

I'm no expert but I've been told by more than one EA plus a solicitor that the Inland Revenue are really hot on this now and there are legal penalites for any EA and/or solicitor who is seen to be 'aiding and abetting' a fraud such as this. Therefore I would guess it would be difficult for you to draw up a legal contract without implicating a solicitor doing it!

merg

Thanks, that's good to know. Thankfully the stamp duty would only come to £1290 for us, but every penny counts! Still, whatever the amount I'd rather do it all legally.
The issue has only come up tonight so I've not had a chance to speak to our solicitors. Thanks for the replies!

theGrinch

can you pay for estate agents fee or her removal and legal costs?

merg

Interesting point. Would the solicitors not find that a bit strange, or would you suggest making that a private agreement? I don't have a problem with a private agreement because I know her well enough, but how would the tax man find out?

wisbech_lad

Because the taxman has the right to ask "where did this 4550 in your bank account come from - can you prove it is non taxable income?"

Unlikely that the seller will be audited, but you never know. More likely to happen if the reported sale is so close to a threshhold

Why not just offer her 124,950 without the bung? Or to be really mean, agree, and then forget to hand over the bung. She can't exactly take you to court...

Bossyboots

merg wrote:

Interesting point. Would the solicitors not find that a bit strange, or would you suggest making that a private agreement? I don't have a problem with a private agreement because I know her well enough, but how would the tax man find out?

Your solicitor has a legal obligation to report to the taxman any tax evasion he becomes aware of. It is one area where client confidentiality goes out the window. As soon as you suggest to your solicitor, or indeed any solicitor, that you would like a legal agreement drawn up to avoid tax, you will be reported. You would in fact be asking a solicitor to be party to something illegal and you could not only find yourself without a solicitor at all, but in serious trouble. The punishment for the solicitor for not reporting you could be imprisonment.

david29dpo

i have seen this done when next door sold. no one but themselves new of the bung, which was pushed under the door 6 weeks after the sale. but £1000 was missing! he could do NOTHING about it.

RabbitMad

This is perfectly legal. It is a recognised tax avoidance scheme (rather than exasion which is illegal.)

The only thing is the extra payment must be reasonable - a lovely vauge word. So if you were to be paying 124999 for a house is 4501 really the value of the carpets, curtains, shed, white goods etc. If this is a fair valuation then this is ok, if not then there is a posibility the tax man will come knocking.

Speak to your solicitor about this (however if the sale has already been agreed at 129500 then you may be scuppered)

Good luck and let us know what the blood sucking leech (sorry solicitor) says!