House part-ex/stamp duty - is this legal??

dweeby

Hi,

There's a long story that I won't bother you with, but I wonder if anybody has any ideas about the legality of the following scenario?

We're trying to buy a house, the house that we're trying to buy is being taken in part-exchange for a larger house for sale through a private seller. So, the person living in the house we want is currently the owner (they haven't yet completed on the purchase of the bigger house), but we're negotiating with the owner of the larger house for our house purchase. The purchase of the larger house goes thru' in about a month from now.

Complicated!

Whilst the owner of the bigger house is about to be the owner of the house we want, we think he's leaving the title deeds etc in the name of the original seller - so that he can buy and sell the house on to us without paying stamp duty (on the purchase of the house he's taking in part-ex).

Is this legal?? or could it be considered stamp duty evasion?

Doozergirl

Leaving the title deeds in the current owner's name leaves the current owner as the current owner. I'd be more worried about having such an expensive asset in someones else name than avoiding stamp duty!

Are you all exchanging and completing around the same time? I think that the person at the top can pass the sale of the property to you between exchange and completion without him having to pay Stamp Duty.

If the person buying has a company and the house is a new build, then they don't have to pay Stamp Duty on the part-ex as long as the intention is to sell it straight on.

dweeby

Doozergirl wrote: »

Leaving the title deeds in the current owner's name leaves the current owner as the current owner. I'd be more worried about having such an expensive asset in someones else name than avoiding stamp duty!

Are you all exchanging and completing around the same time? I think that the person at the top can pass the sale of the property to you between exchange and completion without him having to pay Stamp Duty.

If the person buying has a company and the house is a new build, then they don't have to pay Stamp Duty on the part-ex as long as the intention is to sell it straight on.

I expect that exchange on the purchase of the larger house will go thru, but that ownership of the smaller house will remain with the smaller house seller (yet the top guy wil have have some legal document of ownership).

When (if) we buy the smaller house, deeds will pass from the smaller house original owner to us, and everything will be above board again. And the guy at the top will have effectively bought and sold the house we want, without having paid stamp duty on it.

None of the houses are new-builds.

merlinthehappypig

We part exchanged years ago and, at that time, stamp duty was only payable on the difference between the value. In our case this was £1 so no stamp duty was payable.

It's not something that we have done since, but there was a thread some weeks/months back about stamp duty evasion. One of the solicitors who replied said that this loophole had been closed some years ago and that stamp duty now needed paying on the whole value.

I'd check with a solicitor for a definitive answer. If that is the case, and I'd be suprised if it wasn't given our Governments tax grabbing nature, then the complicated process that you describe will all be for nothing anyway.

subjecttocontract

Property part exchange and subsequent avoidance of stamp duty used to be allowed but my understanding is that with the introduction of SDLT this loophole was closed.

SDLT is payable on the value of the property being exchanged and not on the price being paid.

Beware.......take legal advice NOW.

Doozergirl

Is this a stupid question - why can't you buy the house you want without it being taken in part-ex first?

merlinthehappypig

The only exemption that I can find, having had a dig through some recent law books, is the one Doozergirl refers to.

This is a relief under section 58 which applies where a house-building company acquires a dwelling in part exchange of the disposal of a newly constructed dwelling. Provided that the individual acquiring the new dwelling does so as his only or main residence, and has owned the old dwelling as such immediately before the acquisition, the chargeable consideration is treated as nil.

Everything else I can find points to the stamp duty being payable on the value of the property regardless of the way that it is purchased.

Bear in mind that if you are caught trying to evade Stamp Duty there will not only be the duty to pay, but a probable fine as well. Simply not worth it IMO.

dweeby

Doozergirl wrote: »

Is this a stupid question - why can't you buy the house you want without it being taken in part-ex first?

That would be my preference, but the px deal between the seller of the house we want and the house he wants has already been agreed.

dweeby

merlinthehappypig wrote: »

Everything else I can find points to the stamp duty being payable on the value of the property regardless of the way that it is purchased.

Bear in mind that if you are caught trying to evade Stamp Duty there will not only be the duty to pay, but a probable fine as well. Simply not worth it IMO.

Wow, thanks for all that...

I'm not trying to avoid paying stamp duty, but I think the guy at the top is.

All this is just my suspicion. All I know for sure is that I'm negotiating over the purchase of a house, not with the current owner, but with the seller of the house the the current owner is buying. The px of the house we want having already been agreed.

I'm just trying to understand how/why a private seller of a house worth ~£500k would take a £250k house in part-ex. As far as I can see there are loads of fees, solicitors, estate agents, stamp duty etc and a few risks. I think he's certainly trying to avoid stamp duty, and if the house we want is never owned by him (according to the land registry etc), then I think he'll end up not paying it.

I'm trying to understand his position, just to better understand my strengths as a buyer.

Doozergirl

If I was getting a good price for both properties then I'd do it, no problem. As long as the purchase price for the part ex was under the SDLT 3% bracket then I wouldn't be worried. £2000 odd isn't much when you're banding around numbers like £500,000

merlinthehappypig

dweeby wrote: »

Wow, thanks for all that...

I'm not trying to avoid paying stamp duty, but I think the guy at the top is.

All this is just my suspicion. All I know for sure is that I'm negotiating over the purchase of a house, not with the current owner, but with the seller of the house the the current owner is buying. The px of the house we want having already been agreed.

I'm just trying to understand how/why a private seller of a house worth ~£500k would take a £250k house in part-ex. As far as I can see there are loads of fees, solicitors, estate agents, stamp duty etc and a few risks. I think he's certainly trying to avoid stamp duty, and if the house we want is never owned by him (according to the land registry etc), then I think he'll end up not paying it.

I'm trying to understand his position, just to better understand my strengths as a buyer.

I don't think anyone on here would have a problem with you avoiding paying stamp duty if there was a legal way of doing it! We are simply trying to help you understand the position and avoid an expensive mistake or worse.

It may work for the seller, it may not, but I can't see any benefit for you.