Swap house plus cash - legally avoid stamp duty?

Olinda99

if it was just a straightforward 'they put their house on the market at 285 and you offered them 250 and they accepted' then what you are suggesting would work i.e you wouldn't pay stamp duty because of the 250 limit

however what you are suggesting is not the case it is an artificial transaction in that you are arranging to buy their house at 250 but in return you are offering them your house at a lower rate

this is not allowed and HMRC would tax you on the market value of the house you are buying ie 285 should they find out. in any case I believe when you are filling out the sdlt form you are  specifically asked if it is forms part of a series of linked transactions which in this case it is

to take it to its logical absurdity you could offer to buy their house for 100005 any they buy your house for £5

Bigphil1474

Olinda, thanks. That makes it clearer.  If the two purchases are linked via HMRC , then it would seem we would be caught out and there'd be no benefit in trying to game the system.

As I said in in my original post, I could offer to buy their house for a £1, which would be nonsense, and an obvious attempt to cheat the tax man.

saajan_12

SDLT is due on the consideration, ie value of what you pay for the property, whether that's in cash, mortgage, another property, etc. So that would be the £285k (or whatever a surveyor values it at given renovations).

EA commission depends on the agreement, but the purchase price includes the value of any property.

So in terms of 'allowed', no its not allowed to declare a lower value to lower the tax. If you're really asking whether it would be detected, well its the same as if instead of your employer paying you £45k through payroll, they pay £40k plus £5k cash in hand.. less detectable than paying the full £45k cash in hand, but still illegal. 

Bigphil1474

Thanks for that Saajan, but no, you missed the point. I wasn't suggesting telling the tax man I'd bought it for £250k but really had bought it for £285k,. I was suggesting buying it for £250k with the sellers agreement (using sale of property and cash in one transaction for the whole property).

Appreciate it is a moot point given Olinda's explanation but the EA fees for selling are house are set at 0.9%+VAT, so obviously selling mine at £150k would mean lower fees than selling at £185k. (£1,620 vs £1,998) 

We wouldn't be declaring a lower value, we would both be selling at a value we agreed upon. Your comparison to wages is not relevant - it would be if I offered to do a job at £45k and they only wanted to pay me £40k, then I'd pay less tax, but would obviously receive less money. It's more akin to something like if you were buying a new 'something' advertised for £30k + VAT and you negotiated it down to £28k + VAT, then you'd pay less tax, and you would be allowed to do that.

The only problem would appear to be that if the tax man thought the property was way under value, there would be a knock on the door at some point and we'd both in the stum.

saajan_12

Bigphil1474 said:

Thanks for that Saajan, but no, you missed the point. I wasn't suggesting telling the tax man I'd bought it for £250k but really had bought it for £285k,. I was suggesting buying it for £250k with the sellers agreement (using sale of property and cash in one transaction for the whole property).

Appreciate it is a moot point given Olinda's explanation ..

No, I didn't. You might pay £250k cash, but there's a related transaction ie the sale of your house, where you're effectively giving a discount of £35k (150 instead of 185). If there was no discounted sale, then your seller wouldn't agree to the 250k. 
So effectively the total consideration paid for your purchase is £250k cash + £35k discount = £285k, and that's what the stamp duty is based on. 

Stamp duty isn't actually based on market value, so if there's a real gifted property with nothing in return then stamp duty would be £0. Here there is something in return, ie the property you're selling.