Is this a stupid idea to save on SDLT?

DivineComedian

Hi all, I wonder what you think of the following idea to save on stamp duty? Is it legal and sensible, or simply more trouble than it's worth?

My family and I currently live in our Belfast home. The house is jointly owned by my wife and I, and we are lucky enough to only have a tiny mortgage left which we could easily pay off from savings. Neither of us own any other properties.

My wife recently started a new job based in Newcastle-Upon-Tyne, which is a tough commute from Belfast so we're moving the whole family over there in the spring. We've considered keeping and renting out our Belfast home and in turn renting in Newcastle, but for reasons I won't go into we'd prefer to buy rather than rent in Newcastle.

So far, so dull. However, a very close relative, whom we trust completely, has expressed an interest in living in our Belfast home. She would be willing buy it in a private sale.

So - we could simply sell our current home to her and buy a new place in Newcastle. However, although saving on estate agency costs this would still incur two sets of Stamp Duty Land Tax.

My question is this: Is it viable for her instead to buy a house in Newcastle for us to live in? We could then live in her Newcastle house rent-free, and to reciprocate she would live in our Belfast house rent-free. The houses would be of similar value and as no rent would change hands I assume that there would be no income tax implications, and only one Stamp Duty tax payment due, on the Newcastle house.

The obvious big issue is what we would do should one party want to sell up for any reason. Because our relationship with this family member is so close, there is mutual 100% trust between us and I am sure we can agree what would happen in that situation. In the longer term, unwinding this arrangement will be necessary and inevitable, but we anticipate doing that only when the kids have gown up and left, in about 10 years time. By that stage, we'll be looking for a different type of property anyway and wouldn't want to return to our original Belfast house.

I am more worried about unforeseen problems such as mortgage issues (she would need to get a new mortgage on the Newcastle house that she is not actually going to live in, although she will have a large (50%) deposit). Would that cause an issue with the providers?

Are there any other problems or increased costs that I haven't anticipated? (Insurance perhaps)? Is this simply a stupid idea and we should just forget about it?

Thanks in advance!

Keep_pedalling

It would work as far as stamp duty is concerned, but effectively she would be renting the house out to you so would need a BTL mortgage which is more expensive.

Apart from all the potential pitfalls, like divorce, bankruptcy or death that could come up, she will likely be facing a substantial capital gains tax bill when she eventually sells up, as could you be if you have not been resident in you current house very long.

lincroft1710

I don't know if the rules in NI are the same, but in England every rented dwelling must have an annual gas safety check, so an expense for your relative and probably also you

AnotherJoe

I dont think its worth the hassle and risk to avoid one SDLT, and as said that may longer term be balanced out by capital gains and higher mortgage rate.

In theory I would think it is also tax evasion, though the odds of being caught are presumably quite low, and there can be issues with BTL lenders and letting to family.

So, neat idea but just cough up the money

Bluebirdman_of_Alcathays

Who would pay the mortgage on the house in Newcastle?

DivineComedian

Our family member would do that and she would be the title holder of the Newcastle house. In return she would live in our Belfast house rent-free.

DivineComedian

Completely agree with your hassle and capital gains points. Not sure about the tax evasion though! If the property title doesn't change then I didn't think SDLT applies.

theartfullodger

Never rent to or from a family member.

Guaranteed way to fall out with relatives...

What's wrong with doing things the simple, direct, way?

Mossfarr

Just pay the SDLT, much less hassle in the long run.

AnotherJoe

DivineComedian wrote: »

Completely agree with your hassle and capital gains points. Not sure about the tax evasion though! If the property title doesn't change then I didn't think SDLT applies.

Its tax evasion because its two linked transactions for the purposes of evading tax. As I said, the odds are being caught are extremely tiny, and IANAL, but it seems plain thats what all this is about, you've stated it yourself here !! If there ever was a doubt, in the tiny chance anyone investigated, its now traceable back here..

cashbackproblems

It is tax avoidance and HMRC and catchinf up with these types of schemes

Your capital gains bill could be massive in future much bigger than a piddly 3% stamp duty now