Stamp duty avoidance or evasion tactic?

sydenhambased

Just been to see a delightful flat that's currently on the market at £265,000 (window shopping while our existing transaction limps in the general direction of exchange). The agent put to us a suggestion which was to offer £250k but to pay the agent's fee on behalf of the vendor.

The general principle is that we pay the vendor £250k and the agent £4.5k (1.5% + VAT), rather than offering £255k. The vendor gets the same amount (ish), but we save ourselves £5k in stamp duty.

We're rather keen on this flat but the ground rent and service charge are hefty - this "incentive" would just about sway it.

Is this remotely legal? It strikes me as the kind of thing I couldn't risk running past my solicitor or my mortgage broker, so I'm guessing it's probably not!

TheCyclingProgrammer

If you'd searched, you may have found your answer as this has probably been discussed a million times on here before.

Doesn't work and the agent doesn't have a clue what they are talking about...you pay stamp duty on the total consideration for the purchase. The "total consideration" doesn't just include cash - it would also include settling the vendor's financial liability with the agent.

In other words, you pay £250k for the house and £4.5k to settle the vendor's debts - total consideration is £254.5k and you'll pay 3% stamp duty.

If you run this past your solicitor they will tell you much the same and will refuse to put anything less than the total consideration for the purchase.

Mortgage lender might not be happy with it either.

Its a waste of time.

The only time when this could work is if *you* had a contract with the agent and had agreed to pay them a finders fee (there are quite a few agents who charge vendors a nominal listing fee then charge the buyer a percentage of the sale instead). You wouldn't be giving the vendors anything above the purchase price in this case as it is your contract and your financial liability.

agrinnall

Google "SDLT linked transaction" where you'll find plenty of hits describing what TCP has said.

sydenhambased

Thanks both. I guess my confusion stems from who's paying what for what! I actually spoke to the Stamp Tax Helpline last week (regarding an unrelated matter) so am reasonably well-read on what constitutes a linked transaction. This estate agent's too good at his job...

Mortgage_Mark_2

It is, quite frankly, a pee-take that agents and vendors try this stuff on. It's expensive enough as it is to buy a place and the vendor only pays the agent fee, that's it, and they're now trying this con on....

Typically instigated by cowboys like Haart.

mrginge

TheCyclingProgrammer wrote: »

The only time when this could work is if *you* had a contract with the agent and had agreed to pay them a finders fee (there are quite a few agents who charge vendors a nominal listing fee then charge the buyer a percentage of the sale instead). You wouldn't be giving the vendors anything above the purchase price in this case as it is your contract and your financial liability.

Sale by tender is also in no way guaranteed as a way to avoid sdlt. It is coming under greater scrutiny by hmrc and lawyers and personally i expect it to be outlawed entirely in the medium term.

anselld

sydenhambased wrote: »

This estate agent's too good at his job...

No, that is not being good at his job, just the normal underhand nonsense. If you go down this route it will come unstuck either during conveyance or when HMRC catch up with you.

Just offer £250k take it or leave it and tell them you will not entertain any underhand deals.

TheCyclingProgrammer

mrginge wrote: »

Sale by tender is also in no way guaranteed as a way to avoid sdlt. It is coming under greater scrutiny by hmrc and lawyers and personally i expect it to be outlawed entirely in the medium term.

Possibly, you may be right. I'm no fan of the sale by tender approach and I have often wondered how long it would take for HMRC to cotton on to it.

But its a tricky one...if the seller was never obliged to pay the fees and it was always the buyer who was contractually obliged to pay them, then I don't think the buyer fees can be treated as part of the overall consideration for the property, even though indirectly the vendor is saving money on fees.

But as things stand, I don't think HMRC would be able to do anything about it without taking it all the way to court and trying to set a precedent.

TheCyclingProgrammer

agrinnall wrote: »

Google "SDLT linked transaction" where you'll find plenty of hits describing what TCP has said.

I'm not sure this is quite the same thing as linked transactions, but more to do with how the chargeable consideration is calculated.

http://www.hmrc.gov.uk/sdlt/calculate/value.htm#1

Specifically:

As well as money, property can be exchanged for:
goods
works or services
release from a debt
transfer of (taking on) a debt