Is it legal to pay above market value for a property?

mcr70

Hi,

I and a sibling are looking to buy a site owned by our family.

We are purchasing our bits separately with plans to either renovate an existing property or build a new one.

It's all a bit complicated, but it actually looks like we would save quite a lot of money in stamp duty and interest payments if one of us paid below market value and one over.

The total being paid for the site remains the same and the sibling paying under market value would have to gift the difference to the other to make up the shortfall.

We are both happy to do it, but aren't sure if it's legal for our family members to knowingly sell a property to us above/below market value or if it is ok for us to knowingly buy a property above/below market value?

By doing this one of us will get a better mortgage interest rate because of a better loan to value and there would also be a lower combined stamp duty liability.

If anybody out there has any idea on the legal position of all this it would be much appreciated. is it tax avoidance or smart tax planning?

Thanks

kingstreet

Google "connected transactions HMRC."

Are you buying two sites? Otherwise, how does this work?

mcr70

Hi,

It's one site currently, but we are buying our bits of it separately so it will becomes two sites.

Basically it's a house with a garden that's gained planning permission. One of us is buying the house, the other the plot.

kingstreet

This may be better put to a solicitor.

As I linked to earlier, there are issues with connected transactions.

If one title is a house, that should be mortgageable, but the other, a building plot is unlikely to be.

That would mean the buyer of the plot paying cash.

mcr70

Thanks I've taken a look at the HMRC page.

I don't think the purchases form part of a single arrangement or scheme as the site is being split into 2 on the land registry.

That said we are linked individuals and it does save us money in combined stamp duty, because my purchase would fall below £500k and the other purchase is still below £250k even paying over the market value ( the plot is being bought for cash).

It's a clever idea, just not sure which side of the line it falls!

Nobbie1967

It would be fraud, since you have admitted that there would be a compensatory payment to reflect the artificial pricing of the two sites. This makes the sales connected.

mcr70

I guess that's what I'm waiting to find out. Is it clever tax planning or tax evasion.

I've emailed our solicitor and an accountant with all the facts and figures to get there opinion. Don't want to do anything illegal, but do want to save £10k in stamp duty if it's legal to do so.

custardy

suppose a 'smarter' way to do it, would be the one paying less pays in for the renovations/building costs for the sum they would have gifted

Annisele

mcr70 wrote: »

By doing this one of us will get a better mortgage interest rate because of a better loan to value.

Regardless of the fraud question, I don't think you're going to get what you want.

The mortgage lender will want the house to be valued. The "value" in the loan to value calculation will usually be the lower of the amount you pay, and the amount the valuer says it's worth. (I say "usually" to cover cases where you're buying at an undervalue from a connected person, but that's not the case here - quite the opposite).

thelem

Is it legal to pay above market value for a property?

Yes, but the bits you do round about it probably won't be.

The mortgage lender will do their own independent valuation anyway, so an inflated valuation won't increase the LTV (unless you're able to convince the surveyor that's it's worth that much). If it did increase the LTV then it would be fraud, because you'd be gifting part of the collatoral that the mortgage lender thought they had (and therefore increasing their risk, and what a fair rate is).

suppose a 'smarter' way to do it, would be the one paying less pays in for the renovations/building costs for the sum they would have gifted

That's still compensation for the lower purchase price, and therefore fraud (just hidden a bit better).

Richard_Webster

I don't think the purchases form part of a single arrangement or scheme as the site is being split into 2 on the land registry.

That is totally irrelevant to the issue of whether it is a single arrangement or scheme. It certainly looks like it to me. If the land was sold on the open market to separate individyuals what would each piece sell for? If different from what you are actually paying there's your answer - it is a scheme or arrangement.