Stamp Duty & 'Consideration' on buying for under value

ABBF08291

Dear forum,

This has come up several times in the middle of various threads, but just wanted to get a clarification due to conflicting information from different brokers/solicitors I have spoken to.

Who determines how much stamp duty is payable?

My parents wish to sell me their primary (and only) residence (valued at £800k) for reduced price of £500k. The plan is for me to get a mortgage for £500k and the £300k will be gifted equity via concession sale.

Couple brokers say my stamp duty will be £30k (based on full £800k valuation) since the lender would assess the application on LTV and if I was to pay stamp duty on just the £500k changing hands, my LTV would be 100%

But other brokers and a solicitor said my stamp should be £15k and based on £500k since this is the money exchanging hands and valuation is irrelevant.

Can someone clear up? Or is it just luck of the draw what your lender wants? It seems unfair that a lender would make you put the purchase price as £800k so a LTV calculator comes out clean, when in reality regardless of purchase price the real LTV will always be 63%.

Many thx

TrickyDicky101

In your case the consideration is the cash that changes hands - which is only the £500k. The 'gift' of the £300k is not subject to SDLT:

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property#gift

kingstreet

Yep. Actual consideration is £500k and that is the basis for the SDLT calculation.

If any, CGT is based on actual value.

ABBF08291

Update (specifics still the same - mortgage of £500k and valuation of £800k)

My solicitor has put stamp duty as £30,000 which he has based on the information from the property purchase price details (i.e. based on the valuation of £800,000 and not the consideration).

I asked him regarding the consideration and he says that because the lender does not view the transaction as a 100% mortgage (i.e the mortgage terms state a 63% mortgage) with the 37% equity being gifted, the SDLT has to be based on the valuation price of £800k which also has to be the purchase price to satisfy the lending terms of the lender.

He mentioned in the past some lenders viewed as 100% mortgage (where purchase price = mortgage amount) however my specific lender does not adpot this approach.

Is this final or is there still some way I can argue the point to the solicitor / HMRC ?

Many thanks.

kingstreet

Yes. You need to get the answer from HMRC in writing, because your solicitor is incorrect.

TrickyDicky101

Solicitor is wrong. This is absolutely clear (there is no ambiguity about it). I would be deeply unhappy with the solicitor at this point in time if I were in your shoes. This is the 'professional' you pay to get this right.

ABBF08291

kingstreet wrote: »

Yes. You need to get the answer from HMRC in writing, because your solicitor is incorrect.

Thank you kingstreet.

Update for all - spoke briefly to HMRC stamp duty office and walked them through the transaction. A lady there checked with her department and the answer she was given is that in this type of transaction they would expect SDLT to be paid on the total consideration which they assume to be (My mortgage amount) + (parents existing mortgage).

My mortgage amount will be (max) £497k and my parents outstanding mortgage is £118k hence they said they would expect SDLT on a total consideration of £615k.

quite a big difference:
SDLT based on £615k (assumed consideration): £21k
SDLT based on £800k (valuation price): £30k

all of above assuming the advice from the HMRC rep is accurate

TrickyDicky101

Hi

That's still garbage. The ONLY amount that is consideration is YOUR mortgage (£497k) - what do HMRC think you should pay SDLT on if parents' mortgage was £800k???? £800k+£497k = you bankrupt!!???!!!??!!!

This is utter garbage. Unsurprising from the muppets HMRC employ on the telephones though.

Thrugelmir

TrickyDicky101 wrote: »

Hi

That's still garbage. The ONLY amount that is consideration is YOUR mortgage (£497k) - what do HMRC think you should pay SDLT on if parents' mortgage was £800k???? £800k+£497k = you bankrupt!!???!!!??!!!

This is utter garbage. Unsurprising from the muppets HMRC employ on the telephones though.

If the parents outstanding mortgage was £800k then would they be selling the property for £500k. Highly unlikely. :rudolf:

TrickyDicky101

Thrugelmir wrote: »

If the parents outstanding mortgage was £800k then would they be selling the property for £500k. Highly unlikely. :rudolf:

Unlikely but possible. The point was to illustrate how ridiculous the 'guidance' from HMRC was...

ABBF08291

I was pretty sceptical myself at their advice so did not take their word for it either. Perhaps their "department" have confused the true meaning of consideration. I'll have to follow up with them again or consult with someone with stamp/land tax expertise.

Quite annoying that "mainstream" brokers, "experienced" solicitors and HMRC themselves all give conflicting information. It just shows that there are few true experts and they really do only care about volume.

I also feel sorry for someone who would simply settle a solicitors invoice without knowing any better. My solicitors firm is good and they act quickly but as soon as you challenge them they get moody. Typical.

Happy new year all.