CAN A FIRST TIME BUYER AVOID STAMP DUTY AND BECOME A LANDLORD?

NOVAMET21

Deleted_User said:

Why would they not have income tax to pay for first 2 years?  Even if it is a residential mortgage that is then let, tax should be paid on the income.  

Going through with what you describe will be tax fraud and mortgage fraud.  

There are plenty first time buyers who buy a buy to let to rent out.  Thats perfectly fine.   Thankfully brokers/lenders/solicitors do a good job in stopping most fraudulent cases when someone says they will live in the property but has no intention of doing so. 

The industry has a lot of ways of checking this but i wont name them here as I think you are looking for validation for something you already plan to do anyway

Absolutely wrong. I own my property thank you very much and live there.
As I was saying that there might be a flaw in the system. That's all.

AdrianC

ANMOLAG said:
No one knows and that's the point I'm making and showing the flaw in the system.

Is there a question, or is this some kind of strange campaign? If so, against what?

What "system"? How do you propose to stop people lying?

davidmcn

ANMOLAG said:

Deleted_User said:

Why would they not have income tax to pay for first 2 years?  Even if it is a residential mortgage that is then let, tax should be paid on the income.  

Going through with what you describe will be tax fraud and mortgage fraud.  

There are plenty first time buyers who buy a buy to let to rent out.  Thats perfectly fine.   Thankfully brokers/lenders/solicitors do a good job in stopping most fraudulent cases when someone says they will live in the property but has no intention of doing so. 

The industry has a lot of ways of checking this but i wont name them here as I think you are looking for validation for something you already plan to do anyway

Absolutely wrong. I own my property thank you very much and live there.
As I was saying that there might be a flaw in the system. That's all.

No, there isn't a flaw in the system. They have means of gathering intelligence and carrying out enforcement (eg why is the buyer still living in property A, and there are now unrelated people living in property B ). But like any self-assessment tax, the taxman isn't checking through the return on day one and immediately ringing an alarm bell. 

dimbo61

HMRC have lots of ways of catching up with people who are failing to declare income.
Landlords/ First time buyers who are stupid enough to think they can buy a property and rent it out usually get caught out within a few years and have to pay the Back Tax and fines.
The mortgage company would also be very unhappy and that's mortgage fraud.

theartfullodger

If you donate enough to the Tory party no doubt Bozo will come up with some cunning plan to avoid paying tax. 

https://www.theguardian.com/politics/2020/may/30/call-for-inquiry-into-why-senior-tory-robert-jenrick-helped-donor-avoid-40m-tax

AlexMac

I cannot tell a lie; I chopped down that Cherry Tree.  I sort of did what the duplicitous OP suggests

In about 2007, I bought a property, at auction (risky with a mortgage, and I wouldn't do it again). I had previously sold my main residence, and was living with my partner, literally two doors from the auction property, a derelict ex-rental Victorian cottage.  

I lavished care and attention on the new purchase as it lacked the basics; such as a new roof, viable kitchen, plumbing,  boiler, wiring, bathroom/shower room etc.  I didn't really ever live in it, because at first, it was a wreck (I completed in mid Jan, having bought in mid Feb, with a 28 day deadline; a saga in itself) and more importantly because my inamorata's house, next door but one was fully operational, warm, watertight and it came 'with benefits'. 

Eventually, we realised that it probably made more sense for me to continue to stay with her, and ship her son (25- going on 17) off to stay next door.  This avoided the usual Sunday morning conflict of him ambling into our bedroom for a chat when we had other things on our mind...  He had a shiny new home, independence, and we didn't any longer have to police or fall out over the parties which he and the mates who crashed with him inevitably held.

The happy ending? "Reader, I married her" (she is an Austen fan) so in the interim I didn't actually tell the Building Society about my sleeping arrangements...   And I didn't think the taxman was over-involved either,  especially as I sold it on, after 2-3 years, at obscene profit soon after marriage to avoid CGT as we could obviously only have one Primary Residence once spliced! 

But be reassured, now, 20-odd years later , I'm meticulously honest with HMRC about the income from the two BTLs which I aquired, in part, with the profits and developer experience from the auction sucess!

And if there was a tiny bit of tax avoidance in that dim past last Century - I comfort myself that over a lifetime on PAYE and via my otherwise brutally honest annual self-assessment returns, I've paid massively more tax, pro-rata, than Google or Amazon; probably getting on for half a mil over almost 50 years of wage slavery and 20 years of landlording?

theartfullodger

AlexMac said:

................
And if there was a tiny bit of tax avoidance - I comfort myself that over a lifetime on PAYE and otherwise brutally honest self-assessment, I've paid massively more, pro-rata than Google or Amazon; - probably getting on for half a mil over almost 50 years of wage slavery til I retired?

That's what they all say.. Bit like the argument what because someone has only murdered one person unlike the Harold Shipman's or Dennis Nilson's then that's all right.

Yes of course I've not always done everything right in my life for all my 72 years..

Best wishes to all.

steampowered

Leaving aside the tax fraud, why would you want to do this? 

Most first time buyers need all of the money to fund the deposit on the home they want to live in.

Plus you would need to pay higher rate stamp duty when you do buy a home you want to live in.

Salemicus

NOVAMET21 said:

davidmcn said:

ANMOLAG said:

davidmcn said:

What makes you think there are "lots" of people doing this? Even if they get away with it, what do you think happens when they later want to buy their first owner-occupied property? 

Because I have heard of people doing it to avoid stamp duty, get cheaper interest rate for the first 2 years, no income tax to pay for the first 2 years and so on.

If they want to buy the property to live in then they would buy as an additional property.

The point I was making is that they have already got away with not paying a huge stamp duty when they were meant to in their first purchase.

And have you reported this to HMRC? If not, you can't really complain about them not enforcing it.

The fraudulent mortgage application, and not paying income tax, are nothing to do with the SDLT. 

I'm just saying that there is a way you can bend the rule and people are doing it. That's all. It's not 1 or 2 doing it there are hundreds if not thousands doing it.
I understand your last point but I was just explaining the benefits (although illegal). Who deals with SDLT then? I understand it's the solicitor who deals with collecting the monies for the SDLT but if they don't know the purchasers plan then who will ever know. No one knows and that's the point I'm making and showing the flaw in the system.

How is this bending the rules? It's just breaking them. Why is there "no income tax to pay for the first 2 years"? If you declare that income to HMRC, you'll have to pay tax on it. If you don't, that's tax fraud - but there's nothing special about the first 2 years. It's possible to commit tax fraud at any time!

Earning money and not declaring it to HMRC is not some cunning, brilliant wheeze that you've just thought of for the first time. It doesn't even require the mortgage fraud you also contemplate. Just buy a BTL and don't declare your income! Or any other income, for that matter. I doubt there are hundreds of thousands of people doing what you suggest, but there probably are hundreds of thousands fiddling their taxes in some way. It may even work out for some of them. But an awful lot of them get hit with fines and penalties, and end up significantly worse off than if they'd played by the rules to begin with. I've always believed that honesty is the best policy, but you do you.

AdrianC

Salemicus said:
 Why is there "no income tax to pay for the first 2 years"? If you declare that income to HMRC, you'll have to pay tax on it. If you don't, that's tax fraud - but there's nothing special about the first 2 years. It's possible to commit tax fraud at any time!

I'm going to give the benefit of the doubt, and say it's simply a misrepresentation of timing.

If you started letting in April 2019, you would be looking at paying the first income tax on that revenue at the end of this month. 21 months later.