Stamp Duty - please explain

Demetree

Hello
I'd be really grateful if someone can please explain for me:

I put in an offer of 130K on a house which was accepted. I applied for an 85% ltv mortgage which was approved. But then the mortgage company valued the house as only being worth 120K. The vendors had already gone ahead with their purchase and can't afford to drop below the agreed price. I was still happy to pay 130 but the estate agent said I wasn't allowed to pay more than 120, but I could pay extra for fixtures and fittings. So we agreed 120 + 10K fixtures and fittings as they were leaving all white goods, garden sheds, carpets, lights, curtains etc.
meanwhile I had to get a new mortgage deal of 90% ltv so I had the cash to pay for the extras. However 2 things are confusing me. I have been told that I still have to pay stamp duty, even though the value of the house is only supposed to be 120K. Also, my solicitor says the vendor must supply all receipts for all the fittings and also get approval from my mortgage provider. But my mortgage is only for 108K and I am paying cash for the rest?
I feel that I have lost out - the bank won't loan me as much for the house as they say its not worth it, but HMRC say its worth enough to pay stamp duty. And I am stuck as I need to find £2000 extra cash that I hadn't budgeted for and don't have in the bank.

Hope that all makes sense.
Can anyone shed any light on this for me?
Thanks

TDPIX

That's all correct.

Some of the 'extra' fixtures and fittings you are paying for are genuinely part of the house, and so they count towards stamp duty.

Presumably the garden shed is a fitting and thus part of the house value, as is the carpet.

What you've described used to be a fairly common stamp duty tax avoidance scheme, something which is being clamped down on a fair bit.

So the seller will have to prove that the 'extras' are really worth £10k.

Edit: Thanks for the link tigsly. Always thought carpet was a fixture and fitting since it's usually not loose and easy to move about etc. I do wonder what the OP meant when he said "but HMRC say its worth enough to pay stamp duty" - did his solicitor contact HMRC with the fixtures list, and they rebuffed it?

tigsly

To be honest if the house has been surveyed as being worth 120 - I personally wouldn't pay more.. but horses for courses..

As for the stamp duty - 120 is below threshold - so you shouldnt be paying stamp duty on it.

ETA -corrected by pp


ETA (again) .. looking here.. http://www.hmrc.gov.uk/sdlt/intro/basics.htm

Most residential property purchases

For a straightforward residential property purchase, calculating SDLT is usually easy. The chargeable consideration is simply the purchase price (excluding the value of any extras such as carpets or furniture which are not counted as fixtures and fittings) so you apply the relevant SDLT threshold and rate to the purchase price.


So perhaps the 10k - should be taken out of the stamp duty equation? (I dont think a shed is a fixture an fitting. I've known people to move the shed!)

Yorkie1

It is genuinely quite difficult to reach £10K on non-fitted items which are left behind by the seller, particularly as they will be valued at second-hand and not original value. When you consider that the house has been valued at £120K, HMRC are highly likely to query how a house of that size / value has extras worth £10K second-hand included in the sale.

zzzLazyDaisy

Yorkie1 wrote: »

It is genuinely quite difficult to reach £10K on non-fitted items which are left behind by the seller, particularly as they will be valued at second-hand and not original value. When you consider that the house has been valued at £120K, HMRC are highly likely to query how a house of that size / value has extras worth £10K second-hand included in the sale.

This ^^^^ is exactly what the problem is. This used to be a common stamp duty avoidance strategy but this loophole was closed by HMRC years ago. The EA will tell you anything to close the deal, you should have taken advice from your solicitor before you agreed to the arrangement.

Any chattels that are sold separate from the house sale, still have to be declared to HMRC, and will only be valued at their second-hand value. You would have to have a LOT of high end goods to come to a valuation of £10k. It is much more likely that HMRC did not accept the valuation of the chattels. In that case the excess funds would be deemed to be part of the house purchase and that is what has tipped you into the SD bracket.

This has absolutely nothing to do with the value placed on the house by the lender for mortgage purposes. It is to do with the actual price that you paid for it (including the balance allocated to the purchase price by HMRC)

You should have reduced your price to £120k or walked away.

Cornucopia

Part of the issue for the OP is that the mortgage valuation and the figure for the SDLT calculation are two completely different things.

HMRC are not making any undertaking about the value of the house - they are simply due a percentage on the transaction.

Demetree

Thanks all for the explanations - I now understand that the stamp duty is simply a tax on whatever price is paid for the house, and it's just tough luck that the mortgage company don't agree with the value.

My solicitor is insisting on receipts to the value of 10K, but the vendors solicitor has said they don't need the receipts as we just have to agree the price. Who is correct??

Finally - why does my solicitor have to submit the receipts to my mortgage company when I am paying cash for the fixtures and fitting?

My estate agent doesn't seem to have a clue what is correct - surely this can't be the first time something like this has happened?

I just want to pay whatever I'm supposed to pay as quickly as possible as we will be homeless in 3 weeks time if they haven't sorted this all out. Thanks again for your time explaining things - I am trying to speak with my solicitor but it seems to be impossible as I can't phone while I am at work and she is never available after 4pm!

zzzLazyDaisy

Demetree wrote: »

Thanks all for the explanations - I now understand that the stamp duty is simply a tax on whatever price is paid for the house, and it's just tough luck that the mortgage company don't agree with the value.

My solicitor is insisting on receipts to the value of 10K, but the vendors solicitor has said they don't need the receipts as we just have to agree the price. Who is correct??

Finally - why does my solicitor have to submit the receipts to my mortgage company when I am paying cash for the fixtures and fitting?

My estate agent doesn't seem to have a clue what is correct - surely this can't be the first time something like this has happened?

I just want to pay whatever I'm supposed to pay as quickly as possible as we will be homeless in 3 weeks time if they haven't sorted this all out. Thanks again for your time explaining things - I am trying to speak with my solicitor but it seems to be impossible as I can't phone while I am at work and she is never available after 4pm!

The problem is that you have agreed £120k for the house and £10k for the chattels. It is HMRC that want to see the receipts, that is the requirement when you buy chattels from the seller.

The vendor's solicitor is right in the sense that if you simply agree to pay £130k for the house and the seller agrees to leave the contents, then you can proceed on that basis. Although the new purchase price would have to be reported to the lender (I have no idea what effect that would have on the mortgage offer, if any).

To be honest, a purchase price of £130k is exactly what you have agreed, but you have been misled by the EA into thinking that splitting the amount between house and chattels would get you out of paying stamp duty). The simple fact is that the EA is not YOUR Estate Agent. The EA acts for the vendor. Their job is to sell the house. They have no role at all in advising you. If they make a suggestion it is up to you to get your own advice.

You need to make arrangements for a back up plan for somewhere to live. You have not yet got as far as exchange so there is a very real possibility that you will not complete within the next three weeks.

Personally I would be telling the vendor that I just want to proceed with the house purchase at the agreed price of £120k and that I no longer wish to buy the appliances etc. After all, for £10k, you could probably buy everything brand new anyway. I definitely would not be paying £130k for a house that has been valued at £120k.

kingstreet

You applied for an 85% mortgage of £110,500 on a property with an agreed purchase price of £130,000.

You would therefore have put down a deposit of £19,500 and paid stamp duty of £1,300.

If the property is only valued at £120,000, the lender will now lend you 85% of that, or £102,000. If you intend to continue with the transaction at £130,000 using this "fixtures and fittings plan" you will need to increase your deposit to £28,000.

The lender may have a maximum loan of 90% of the lower of purchase price or value, but that will mean a change of product and a higher rate, but may enable you to borrow £108,000 with £22,000 deposit instead.

IMHO stamp duty will remain payable unless you can evidence the true value of these fixtures and fittings to HMRC. Carpets, curtains fridges etc do not retain their value particularly well. Look on ebay for evidence of that.

If the surveyor has valued the property at only £120,000, why do you want to pay £10,000 more for it?

BazzaDP

The mortgage valuation will naturally be cautious. If you feel it is worth £130k to you and you can afford this then you should buy it (providing you can arrange the mortgage).

So your choices are to either accept this, or use the mortgage valuation as leverage to try to persuade the vendors to reconsider their fee. To be honest it is rare for properties to sell around the stamp duty level because of the extra costs to the buyer, so that also works in your favour if you do want to renegotiate. Normally they are stuck at £124,999 and then jump to £135 or £140k. Perhaps you can meet in the middle at £124,995. Perhaps with some small chattel for fixtures and fittings.

Be very careful with how you proceed though. It looks to me (and will to HMRC) that you have are deliberately pricing the chattel at £10k to allow the buyers to make their £130k asking price, but avoid stamp duty. I realky doubt they are worth £10k and you really need receipts to show this if you proceed. If you are going to have to pay £130k and are willing to, then just pay that. Otherwise you'll only get in trouble later.

zzzLazyDaisy

BazzaDP wrote: »

Perhaps you can meet in the middle at £124,995. Perhaps with some small chattel for fixtures and fittings.

Even this is risky. You have to declare all transactions with the vendor by law. If you do not do this, it is tax fraud. Just £1 over the SD threshold on the purchase price of the house incurs SD on the full amount. Without receipts, HMRC are unlikely to accept any amount, however small, as you cannot prove that you have bought anything from the vendor. Even if HMRC does accepts that you have bought chattels from the vendor, they only have to disagree with your valuation by a measly £6.00 to drop you into the SD bracket. I'd be willing to bet my house that would happen.

My advice is to agree a price below the SD threshold and either get the vendor to throw the chattels in, or tell the vendor you don't want them.