Stamp duty to buy out relatives from inherited house?

trickydicky802

Tom99 wrote: »

That would be blatant fraud since the two transactions are obviously linked. Also the mortgage co will appoint a solicitor to act for them who will want the transaction done above board.

Blatent fraud or legal tax avoidance?

It's not illegal to change the terms of a will and it's not illegal to gift money. Yes, doing it the way suggested would avoid paying SDLT but it's hardly fraudulent in the sense of using covert or illegal transactions.

Imagine I have a bunch of shares on which £20k CGT would be payable on their disposal. I have an annual CGT exemption of £10k (might be different now, but bear with me) so if I sell them all on one day I have to pay CGT on £10k.

But if I sell half of them on the last day of the tax year and half on the first day of the next tax year then each transaction would fall within my CGT allowance and I would have no tax to pay. Both are perfectly legal transactions for the purposes of avoiding tax. Would that also be 'blatent fraud'?

Tom99

trickydicky802 wrote: »

Blatent fraud or legal tax avoidance?

It's not illegal to change the terms of a will and it's not illegal to gift money. Yes, doing it the way suggested would avoid paying SDLT but it's hardly fraudulent in the sense of using covert or illegal transactions.

Imagine I have a bunch of shares on which £20k CGT would be payable on their disposal. I have an annual CGT exemption of £10k (might be different now, but bear with me) so if I sell them all on one day I have to pay CGT on £10k.

But if I sell half of them on the last day of the tax year and half on the first day of the next tax year then each transaction would fall within my CGT allowance and I would have no tax to pay. Both are perfectly legal transactions for the purposes of avoiding tax. Would that also be 'blatent fraud'?

[FONT=Verdana, sans-serif]What is tax evasion, not avoidance, is the pretence that the deed of variation is free of consideration and that the cash payment is a unrelated gift. The two transactions are obviously linked.[/FONT]

[FONT=Verdana, sans-serif]'Transactions are linked if they form part of a single scheme, arrangement or series of transactions between the same vendor and purchaser or, in either case, persons connected with them.'[/FONT]

[FONT=Verdana, sans-serif]A bloke fixed my roof last week as a favour, I was so please I made him a gift of £1,000.[/FONT]

[FONT=Verdana, sans-serif]Selling an asset by fragmenting it into parts is not the same, it is legitimate tax avoidance.[/FONT]

trickydicky802

OK, I get the 'consideration' thing now - the roof repair is a good example.

So if fragmentation is legitimate then presumably, in this case, the executor could assent the property to all three beneficiaries (valued at 200k : 100k : 100k) and the OP could then buy out her brothers for £100k each, and there would be no SDLT payable as £100k is below the SDLT threshold?

Same sums involved, same end result but one route is tax evasion while the other is tax avoidance. No wonder taxation is a minefield!

Tom99

trickydicky802 wrote: »

OK, I get the 'consideration' thing now - the roof repair is a good example.

So if fragmentation is legitimate then presumably, in this case, the executor could assent the property to all three beneficiaries (valued at 200k : 100k : 100k) and the OP could then buy out her brothers for £100k each, and there would be no SDLT payable as £100k is below the SDLT threshold?

Same sums involved, same end result but one route is tax evasion while the other is tax avoidance. No wonder taxation is a minefield!

The +3%, £6,000 would still be paid since the OP has another property.
You would try to claim that the three transactions, the assent plus the two separate purchases from different sellers were not linked. Since one brother could decide to sell and one not then maybe you would succeed.
You would hope to save £1,500 stamp duty but could well spend that on extra fees and Land Reg charges.

hungryman

Can't do the fragmentation approach as one brother doesn't want to have his name 'on' any other property and would just want it assented from the estate directly to me, without him ever being listed on the land registry info etc.

So from what I can, my only option would be:

1. Property assent to me.
2. I get mortgage loan for 50% of market value.
3. Once I get the mortgage, I payoff my brothers with it - that's them sorted.
4. And finally, as the £200,000 payoff to my brothers is a 'consideration' I will be charged stamp duty on it (presumably just on the £200,000 payoff, not on the value of the whole house).

Sound right?

xylophone

Did you see post 8 above?

As far as I can see, you find a mortgage lender and get the mortgage agreed.

The executor agrees to transfer the property to you alone in consideration of a payment of £200,000.

You pay SDLT.

The executor transfers £100,000 to each of your brothers.

But you could try a pm to SDLT Geek.

SDLT_Geek

It would be possible for the executor to assent the property to the three beneficiaries 50 / 25 / 25 and for OP to then buy out the two 25% shares for a total of £200,000. SDLT at the higher rates on that (as OP has another property and has not lived in this one throughout the last three years) would be £7,500.

If instead the executor transfers the property to OP then this would be in return for £200,000 from OP (which the executors can distribute to the siblings as part of their entitlement under the Will). OP would still pay SDLT on the £200,000 at £7,500 as the "chargeable consideration" is £200,000, not the whole value of the property.

It would have been different if the estate had included cash or other assets such that the siblings could have had these "appropriated" to them and OP had the property interest. But here OP is putting in cash in order to obtain a property interest, so this must be chargeable consideration for the acquisition.

hungryman

Got it!

Thanks to all of you for the info, really appreciated.

Scary that the 'professionals' that we're using (solicitor, accountant etc) weren't as clear on the correct rules & processes.

edmoc3

I inherited my parents property with 3 other siblings.  The house is not selling after nearly three years.

I am therefore thinking of having to sell my property and buying my siblings out and living there.    Would I have stamp duty to pay on this purchase?

hazyjo

edmoc3 said:

I inherited my parents property with 3 other siblings.  The house is not selling after nearly three years.

I am therefore thinking of having to sell my property and buying my siblings out and living there.    Would I have stamp duty to pay on this purchase?

Please start a new thread. Thanks.