Seller pays stamp duty - can we do this?

lowriful

Our flat is on at the asking price of £279,950 - so just above the stamp duty threshold. It's a real pain as we'd be happy to take an offer - but £250K (on the threshold) is much too low.

A friend suggested we could offer to pay the buyer's stamp duty. We mentioned it to the estate agent and he said it was a good idea (slightly miffed he didn't suggest it if it's such a good idea though!).

But ... I've heard since that maybe the taxman might not like the arrangement - is that true?

I've also heard that some lenders might not like it.

But then a solicitor (off the internet) said he thought it was absolutely fine.

I'm so confused! As I can see other people offering it so it must work sometimes, surely?

Any advice would be much appreciated, thanks!

martinsurrey

Most mortgage companies would only lend on the net price paid for the house, and here is why.

House advertised for £270k
Offer of £250K
Stamp duty to be paid by buyer £2.5k
10% deposit = £25k
Mortgage amount £225k
Mortgage percentage as net price of house = 90% (225/250)

Offer £270, with stamp duty paid by seller (£8.1k)
10% deposit = £27k
Mortgage amount = £243k
Mortgage percentage as net price of house = 92.3% (243/[270-8.1])= 92.3%

In effect what this does is let the purchaser finance stamp duty through the mortgage company (they pay a higher price for the house, of which 90% is funded by a mortgage).

In the “good” (?!?) old days of sky rocket prices, this was less of a concern, but now with falling prices, they see this as a VERY high risk and if they find out will refuse the loan.

Sorry to be the bearer of bad news.

(new build developments are slightly different as the mortgage companies expect a certain level of incentive)

Yorkie1

It counts as a vendor gifted deposit.

There are no mortgage lenders out there now which will lend in such circumstances, unless the seller is a property developer.

To conceal it would require the connivance of everyone.

And yes, HMRC would be interested.

JQ.

I'm don't know why HMRC would be interested. The proposal involves over-inflating the sale price of the house above the £250k threshold, therefore HMRC would get considerably more tax than if you didn't offer the incentive.

However, as stated above, it's totally pointless from a mortgage point of view as any mortgage offer to the potential buyer will just have the incentive deducted from the offer. What you'd actually end up with is people making offers on your house who can't afford it and then not getting the mortgage offer, wasting everyone's time.

G_M

Why offer to pay the buyers SDLT?

Why not just reduce the asking price (or accept an offer) by the same amount?

That way HMRC won't be cheated and the buyer's mortgage lender won't be misled.

Gentoo365

JQ. wrote: »

The proposal involves over-inflating the sale price of the house above the £250k threshold,

This is why it would fail.

Makes more sense to just accept a lower offer anyway. If the vendor was willing to pay 270k (and you 8.1k). Then why not just accept an offer of 262k?

Vendor pays 262k + 7.86k duty = 270k ish
You get 262k

instead of

Vendor pays £270k
You pay 8.1k
You get £261k

Unless I am missing something silly here.

Gentoo365

If there is one thing worse than a potential fraud. There is a potential fraud where the only benefit is HMRC.

lowriful

Why do this?

Well, our flat is at just over the stamp duty threshold.
If it wasn't there wouldn't be a problem, we could just accept a lower offer.

However the stamp duty jumps from 1% at £250,000 to 3% at £250,001 which is quite a hike. This means that there is a bit of a no man's land between £250K and £270 or so.

There are many buyers who can afford £250K but can't stretch any further because all their cash is in their deposit. However they could add extra money on to their mortgage.

This means for us that we get a buyer who wouldn't have been able to stretch to the higher amount otherwise, so it makes a massive difference to us actually, one which we couldn't achieve by simply dropping the price

lowriful

lowriful wrote: »

"In the “good” (?!?) old days of sky rocket prices, this was less of a concern, but now with falling prices, they see this as a VERY high risk and if they find out will refuse the loan."

Why does this make a difference? (Sorry if I'm being dim!)

Does it make any difference to know that the flat is in a part of London where the prices are rising, quite healthily actually

lowriful

As far as I can tell, this isn't a fraud - it's a "buyer's incentive", and must be declared to the lender.

I'm confused by the advice I'm getting (not just from here) as some is positive, some is negative.

My best guess at the moment is that it seems that this is actually legal - but that it depends on the individual mortgage company as to whether this is workable or not.

littlesparkles

I've seen this advertised on one or two houses on rightmove so it must happen. Also I am buying a new build and the builder is paying stamp duty for me. Some mortgage lenders are funny about this but not all. For example, Nationwide, Santander, Norwich & Peterborough.