Stamp duty paid by vendor...how?

peckinpah

We've recently purchased a property for £267,000 and the vendor has offered to pay 2% of the stamp duty, which seemed like a good deal. Being novices at the whole house buying thing (something we've only done once before), we asked the estate agent exactly how they pay the 2% but they didn't know and said our solicitors would understand the process.

Today I got a call from our solicitors asking me how the 2% stamp duty deal is going to work??? She said they can't give me the money as cash as I would have to pay tax on it and even if they did give me the money my mortgage lender would see it as us being given a sweetener to buy the property and may refuse to give us the mortgage.

There seems to be a lot of properties on the market that have an offer of the stamp duty being paid so I would assume there must be some kind of secret process in place that I don't know about.

My solicitors suggested solution is to ask the vendor for a 2% reduction off the price and then we'll just sort out the stamp duty ourselves.

Can any of you clever people shed some light on this please?

frivolous_fay

Do you mean 2% of the stamp duty meaning £160... or 2/3 or the stamp duty, meaning £5,340?

peckinpah

Yes £5,340.

I too would've thought giving the money straight to the solicitor would be the intention but my solicitor is telling me if that happens I have to pay tax on that money and I don't want that to happen

Doozergirl

I assume you just pay a total of £267,000 to your solicitor who then pays the stamp duty and passes the £267,000 minus 2% of the SDLT on to the vendor. In that way, you are actually paying the stamp duty so there is no tax to pay on them giving you any money and the vendor simply receives slightly less money.

The sale might have to go through as being less than originally agreed though. But if developers can do it, why can't anyone else?

benood

By offering to pay a proportion of the stamp duty they are effectively just offering to cut the price you pay: 2% of £267,000 = £5,340 reduction.

So actual purchase price = £261,660 - your solicitors are right.

Richard_Webster

Sensible thing is to agree to pay £261,660 for property - then seller still gets same amount as he intended - but you only pay £7,849 SDLT instead of £8,010 if the price had stayed at £267,000 and an allowance on completion of £5,340 had been made.

Either way, if there is a mortgage, your solicitors will have to tell your lender about it as it will affect the loan to value ratio.


As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.

silvercar

I think this is known as a part-gifted deposit, the vendor is gifting you part of your deposit.

The other way round would be for you to pay the full house price on completion, the seller's solicitor then retains the agreed portion of the stamp duty and passes it to your solicitor after completion. Stamp duty has to be paid within 28 days of completion. So after completion your solicitor can put your stamp duty contribution along with the money returned from the seller's solicitor and pay the stamp duty. This won't affect the house value and so won't need to be notified to the mortgage lender.

Richard_Webster

The other way round would be for you to pay the full house price on completion, the seller's solicitor then retains the agreed portion of the stamp duty and passes it to your solicitor after completion.

Solicitors don't muck about like that - the buyer simply pays the requisite amount less at completion - holding the money for a period afterwards doesn't make any difference to the price and doesn't make any difference to what the lender could say - e.g. if the loan to value (i.e. real price) ratio goes over a threshold in their lending criteria.


As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.

kodokan

Barking - I've seen this in the newspaper here too, and wondered why the vendors don't just cut the price by some thou, rather than messing around with this '2% Stamp Duty vendor incentive for quick completion' tosh, which is no more convincing than pricing stuff for £19.99 in the shops and expecting people to not realise they're spending twenty quid.

peckinpah

Thanks everybody. I'll be talking to the estate agent tomorrow and I'll let you know what the outcome is.

disintermediation

Richard_Webster wrote: »

Either way, if there is a mortgage, your solicitors will have to tell your lender about it as it will affect the loan to value ratio.
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It does not always effect the loan to value ratio. I asked for £5k from the vendor to go to £260k. I had two firm mortgage offers from two very large international banks. I told both about the buyers incentive of £5k. One did put it into their calculation and one did not.