Stamp duty - estate agent fees 'grey area' help,help

cab37

hi, i am buying a property for 515k but i have been told by my solicitor that if i pay the guys estate agent fees it basically gets it under the stamp duty threshold and i save 5k. however, this guys solicitors have said that he will be liable and told him not to do it..but my thoughts on this is that if u take off the estate agent fees then u get the value of the propery and that is what the stamp duty tax is based on..does anybody know who is corrct here my solicitor or his solictor..many thanks in advance

merlinthehappypig

His solicitor.

The price for stamp duty calculation is the price you pay. The Estate Agent's fees are nothing to do with it. I can see where you are coming from, but any decent solicitor won't touch an arrangement like that because of the risk. If you can get an arrangement where you pay under £500000 for the house and a separate arrangement where you pay his fees then you might get away with it. The arrangement for paying the fees would have to be informal ie. the seller will have to trust you to pay up. Anything formal in writing runs the high risk of HMRC finding out about it, making you pay the stamp duty and a fine.

Stamp duty is an absolute disgrace and, like you, I am very reluctant to go over the £500000 mark in principle. The only safe way, however, is to pay less than £500000. At £515000 I'd rather accept less for the house, if I was the seller, than run the risk. Don't think that HMRC haven't seen all the possible ways of avoiding stamp duty, they have and will look closely at all transactions just under any of the thresholds.



Sorry.

Generali

Stamp duty is payable on the market value of the house, not the price at which it is transfered.

Having said that, proving that a house is worth £499k or £515k would be hard. The difference is only 3%.

I would be very wary of trying to defraud the taxman though. If you get caught then it'll cost you plenty. In theory at least you could end up playing Hide the Sausage with Mr Big in the showers of Clink.

merlinthehappypig

Generali wrote: »

Stamp duty is payable on the market value of the house, not the price at which it is transfered.

Having said that, proving that a house is worth £499k or £515k would be hard. The difference is only 3%.

I would be very wary of trying to defraud the taxman though. If you get caught then it'll cost you plenty. In theory at least you could end up playing Hide the Sausage with Mr Big in the showers of Clink.

Surely 'market value' is always going to be the price someone pays, though, unless they are trying to get out of stamp duty with schemes like the OP suggests.

We've always argued, and mostly agreed, on here, that houses are worth what someone will pay, not some nebulous figure dreamed up by estate agents.

If someone pays say, £550000, for a house which is only 'worth' £500000, they still pay the stamp duty on the £550000, don't they? Likewise, if I managed to get a price down from say £600000 to £499500, I don't get penalised (well, even further penalised) for getting a 'bargain'. I pay the stamp duty on £499500, not the £600000 it was selling for.

Where the problems arise is when someone agrees to pay £515000 for a house, but tries to lose £15001 in various creative ways to get out of stamp duty.

Unless I'm being really thick, which is always possible.

Generali

chriseast wrote: »

Surely 'market value' is always going to be the price someone pays, though, unless they are trying to get out of stamp duty with schemes like the OP suggests.

We've always argued, and mostly agreed, on here, that houses are worth what someone will pay, not some nebulous figure dreamed up by estate agents....

....Unless I'm being really thick, which is always possible.

In general I agree chriseast, something is worth what another person will pay for it. However, you're missing the difference between the value of a thing - the price that a willing buyer and seller agree between them - and the 'market value', that being the last price paid by a buyer to a seller for something.

To work out stamp duty, market value is used. That prevents some of the more obvious stamp duty evasion practices (like buying a house for a quid and buying the same person's Austin Allegro for £850,000).

merlinthehappypig

I'm sure we actually agree, in principle, but it would be interesting if someone challenged 'market value' to try to get out of or re-claim stamp duty.

The definition of market value being 'the last price paid by a buyer to a seller for something' doesn't hold up in any free market. Prices change all the time, particularly house prices. If I was trying to buy a house now for £515000, I couldn't argue with HMRC that it's market value is only £245000 because that's the last price paid by a buyer to the seller for the house, albeit in 2003. Well, I guess I could, but I shouldn't imagine I would get anywhere.

I agree with your example of the house and the Allegro (though I'm not sure the Allegro would hold up at £1 even, having owned one many years ago), but it's a much grayer area between say £450000 and £550000. I might be willing to pay £450000 for a house, but someone else with different priorities (and more money) might be willing to pay £550000. That doesn't mean that I would be trying to cheat HMRC at £450000 any more than it makes the £550000 market value, just because someone is prepared to pay it.

I'm not arguing with you, but it does seem odd, if HMRC define market value in that way, that we all happily pay stamp duty on what we pay for the house like so many sheep when the definition of market value lends itself so open to interpretation. I can't imagine there have been many, if any, cases where stamp duty has been calculated on anything other than the price paid, unless fraud is suspected. Even fewer cases where HMRC have generously refunded some stamp duty when they consider that the buyer has paid too much.......

Sad that we find this interesting really on a Saturday night, but there isn't anything any good on TV I'm supposed be turning the PC off because of thunderstorms anyway, not MSE'ing.......

Generali

I suspect we do agree.

In equity markets (my real area of expertise) the last price paid is the market price intraday. When you hear on the lunchtime news that Megacorp was down 60p to 138p on the news that the new Chairman is acutally an ant or something, the price they quote is the last completed transaction when they take said price.

You're right, prices do change all the time. That's why you have to take the last completed transaction as being the market price - there's nothing more up-to-date and you can hardly take the next one as your base!

If you overpaid for a house then I suppose that HMRC could argue that you've set a new market price - bigger fool and all that. Of course with houses things are complicated by the fact that houses aren't fungible in the same way that shares are. One ordinary share in BP is the same as another for example but houses are mostly all different so you can argue the toss over largish amounts.

FWIW, I prefer to avoid rather than evade taxes.

guppy

Generali wrote: »

You're right, prices do change all the time. That's why you have to take the last completed transaction as being the market price - there's nothing more up-to-date and you can hardly take the next one as your base!

But say a share closes at one price, then the company is struck by some disaster overnight, the value of the company (and its shares) is surely worth less?

Besides, arguably far more bad bargains are made in the housing market than the stock market, one sale alone rarely proves anything, buyers and sellers have all kinds of motives.

Anyway, no respectable solicitor would get involved in such a scheme. They'd be conspiring to defraud the taxman and could potentially lose their livelihood. Stamp Duty is on the total consideration, whether this be in the form of cash, gold bars or services rendered.

This vendor is having a laugh if he thinks he can get anyone to pay £15k over the Stamp Duty threshold in a falling market...it usually takes a while to shift a £500k house, he should be lucky he's got a buyer, and is no position to dictate terms.

If you're buying a borderline house at a high value Stamp threshold, you're a prime candidate for further investigation.

RabbitMad

I think everybody is in agreemnet that all SDLT loop holes have been closed now (From F&F to properties in a limited company)

how long before some genius find another loophole, or some law is tweaked which allows it is anybodies guess

Generali

guppy wrote: »

But say a share closes at one price, then the company is struck by some disaster overnight, the value of the company (and its shares) is surely worth less?

This is sort of true but strictly speaking it's not worth less until someone strikes a trade at the new price. Think about it. How else can you do it?

Let's take Northern Rock for example. Their shares closed at 118p on Friday. That means that in the 'closing auction' (seriously, don't ask - you don't want to know!) the shares were selling for 118p each and that is how much they are 'worth'.

Now lets say that this afternoon, Northern Rock announce that they have discovered that their IT department has discovered the secrets of alchemy and as a result, all their funding problems have gone.

In such a scenario, Northern Rock shares are almost certainly worth more but you can't say exactly how much until Monday morning and so we are stuck with using the closing price as being the bast approximation of their value until Monday morning. As they say, Cash is fact, everything else is just speculation.

guppy wrote: »

Besides, arguably far more bad bargains are made in the housing market than the stock market, one sale alone rarely proves anything, buyers and sellers have all kinds of motives.

Agreed. And it does make deciding what the value of a house is harder.

guppy wrote: »

Anyway, no respectable solicitor would get involved in such a scheme. They'd be conspiring to defraud the taxman and could potentially lose their livelihood. Stamp Duty is on the total consideration, whether this be in the form of cash, gold bars or services rendered.

This vendor is having a laugh if he thinks he can get anyone to pay £15k over the Stamp Duty threshold in a falling market...it usually takes a while to shift a £500k house, he should be lucky he's got a buyer, and is no position to dictate terms.

If you're buying a borderline house at a high value Stamp threshold, you're a prime candidate for further investigation.

If the solicitor is really unlucky they could get caught up in the money laundering rules. In the financial world they now include helping with tax evasion - I don't see why they'd be any different for a solicitor.

guppy

Generali wrote: »

This is sort of true but strictly speaking it's not worth less until someone strikes a trade at the new price. Think about it. How else can you do it?

...

In such a scenario, Northern Rock shares are almost certainly worth more but you can't say exactly how much until Monday morning and so we are stuck with using the closing price as being the bast approximation of their value until Monday morning. As they say, Cash is fact, everything else is just speculation.

Do you mean some kind of official accounting or book value? Apologies, not up on my financial terms

I don't know much about stocks, but valuing a house is exactly as you say, informed speculation. If its suddenly found to have development potential or subsidence, what it sold for yesterday could be irrelevant. No one will sell or buy it for that price.

Surely the job of the analyst, trader or property valuer is to try and put a value on something where the price isn't known?