Is this a stupid idea to save on SDLT?

AnotherJoe

cashbackproblems wrote: »

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

Avoidance is OK. It's evasion which is the bad one. Avoidance would be, buying a house under the SDLT threshold for example, that's OK. Evasion is, two parties doing fake linked transactions for the purposes of evading the tax they would otherwise pay.

I'd also suspect that over a few years the combined cost of the legal requirements such as gas certificates, electrical (coming?) would cost more than the SDLT. Plus the need to declare the income each year, and the tax forms.

AdrianC

DivineComedian wrote: »

Because our relationship with this family member is so close, there is mutual 100% trust between us

Does that 100% trust also apply to their divorce lawyers, their trustees in bankruptcy or the executors of their will?

What happens if one house increases in value much more rapidly than the other?
What happens if one person wants/needs to move house?
What happens if one person wants to extend the house, or is lax on maintenance?
What happens if one house burns down?

How much IS the SDLT "saving"? We're talking about houses in NI and Newcastle - not exactly prime central London when it comes to property prices, let's be fair...

How do you feel on a more general basis, morally, about those who put convoluted schemes together in order to avoid paying the taxes they're legally obliged to, which fund the public services we all use and benefit from?

If, after going through all of those, you still think this is a good idea, then goferit. What could possibly go wrong?

TrickyDicky101

What value of properties (both the NI one and Newcastle) are you talking here?

Tansy_1980

Whether she pays rent or not, she will be a tenant and you will be obliged to comply with all relevant NI law relating to landlords, including the requirement to register as a landlord (at a cost), ensure the property has a Certificate of Fitness (if it is over a certain age or does not meet exemptions), provide the tenant with a rent book, provide the tenant with an EPC, carry out annual gas safety checks on any gas appliances etc. You will also have to ensure that you observe proper procedures relating to notice to quit periods, eviction and access to the property and will, by default, be responsible for certain repairs to the property unless you prepare a tenancy agreement which says that the tenant is liable. It's murky waters and it may be best to work out what your actual SDLT bill will be or to sell the Belfast property now and then purchase a Newcastle property once it has been sold and when you no longer own any property - then you'll only be liable for basic SDLT and won't be hit by the two-homes requirements. As I understand it, and I'm no expert, the SDLT surcharge won't apply (or can be reclaimed within three years) if you are purchasing a second property as a replacement for your main residential property which has been sold or will be sold.

DivineComedian

Thanks all for the replies and advice. I agree that this idea is, on balance, stupid and I won't take it any further. I've no intention of becoming a landlord and I didn't realise it would apply even to rent-free situations.

I'm still not convinced though that this would be tax evasion. I was never intending to tell lies to the authorities or anyone else about which house was my primary residence. Only one property would change hands and one SDLT would be paid - I honestly don't see the illegaility.

Bluebirdman_of_Alcathays

DivineComedian wrote: »

I'm still not convinced though that this would be tax evasion. I was never intending to tell lies to the authorities or anyone else about which house was my primary residence. Only one property would change hands and one SDLT would be paid - I honestly don't see the illegaility.

In 2013 the Finance Act brought in GAAR - General anti-avoidance rules. As with the film partnership schemes that were recently in the news, it is now possible to do things that are perfectly legal (such as in your case), but if HMRC deem that they are contrived with the sole intention of avoiding tax, they become unlawful. I'm not saying that yours falls into that category (I don't think it does), but it's fairly close to the whistle.


On this forum there are plenty of people who froth at the mouth when it comes to tax avoidance. They probably have pensions or ISAs so are adroit at avoiding tax themselves, but when others do it.....

AdrianC

Bluebirdman_of_Alcathays wrote: »

In 2013 the Finance Act brought in GAAR - General anti-avoidance rules. As with the film partnership schemes that were recently in the news, it is now possible to do things that are perfectly legal (such as in your case), but if HMRC deem that they are contrived with the sole intention of avoiding tax, they become unlawful. I'm not saying that yours falls into that category (I don't think it does), but it's fairly close to the whistle.

On this forum there are plenty of people who froth at the mouth when it comes to tax avoidance. They probably have pensions or ISAs so are adroit at avoiding tax themselves, but when others do it.....

There's a difference between tax evasion and tax avoidance, of course. Avoidance is planning within the law to make savings. Evasion is bending or breaking the law in order not to pay taxes which are due.

Taken to the extreme - yes, ISAs can be viewed as tax avoidance. But so's not smoking, or not drinking a bottle of whiskey every night, or buying a new car that's in a low VED group and has good fuel economy. Or walking to the shops instead of driving.

I'd say that the OP's plan comes very close to tax evasion, for the reasons you point out.

But that's just one of the minor issues with it - there are a myriad of practical issues which far outweigh it.

Pixie5740

I wouldn't say the idea is stupid, more a very complicated way of trying to avoid paying SDLT which could then lead to problems further down the line in terms of family relations, repairs and maintenance, if/when one party wants to move, etc.

tlc678910

The main financial problem with your idea is the capital gains as mentioned above. (As well as more practical problems).

If your relative bought the property in Newcastle and lets say over time the property increased in value by 50K as your relative never lived in the property full capital gains tax is due less any personal allowance.This will be in the tens of thousands (edit: teens of the thousands?)rather than the low thousands for stamp duty on the purchases. It's my understanding that capital gains is due on the market value even if your relative sells it to you for the price they bought it for.

Do you own further property and would have to pay the additional land tax rate?

Loads of practical problems including how would financing maintenance and improvements be tackled? Won't you need to pay two lots of stamp duty later when you swop the houses over. If you or your relative gets into financial problems or divorces/dies the other one will lose their home.

I don't think this even needs to be illegal as it sounds such a nightmare that I can't imagine why anyone would want to do it. I think you could enter into a whole heap of major problems to avoid a minor inconvenience of one amount of stamp duty in the low thousands.
?

Tlc

teddysmum

If the lady needed residential care (this not only for older people as young ones can develop devastating illness or have an accident), the Newcastle house would have to be sold to cover costs.