New house under 120,000 - why did I have to pay out stamp duty?

zzzLazyDaisy

Need2Save wrote:

Just to clarify: I did not mean to imply that there is an ownus on any solicitor to give a free initial consultation. However, this is standard practice in most large reputable firms .

I used to work for a large city centre practice and we definitely did not give free initial consultations, and neither did the firms that friends worked for. However, none of the practices that I am talking about did Legal Aid work either, so maybe the free consultation is a feature of practices that do legal aid?

Daisy

Tammyleicester

Hi, It is £120K, leasehold or not... I work in account for a conveyancing co (ie i write the cheques and fill in the SDLT 1 forms.

Bossyboots

Ian_W wrote:

Thanks BB, I take it you are using a software package to calculate SDLT? But I note it uses thresholds etc current on 17/3/05, I thought Chris was saying [rightly or wrongly] more recent changes had had brought this about.

I understood, IF indeed I understood correctly, his solicitor had said the formula would now be [using my figures]:
£250,000 + (£20pa x 950 years unexpired lease) = £269,000 effective sale price for SDLT purposes.

I used the Inland Revenue's own calculator which I am assuming has been updated with all the latest rules.

http://ldcalculator.inlandrevenue.gov.uk/

Ian_W

Thanks BB. I think Chris and/or his solicitor have misunderstood and/or are having a "send 3 + fourpence" moment somewhere along the line. If the Renue say it's right, it must be - after all, TAX DOESN'T HAVE TO BE TAXING, does it!! :doh:

bunking_off

Must admit I hadn't heard about this, but a quick google search indicates that some changes were made in 2003 in this area.

In any case, what I would highlight is that from the limited amount I could find on a quick search, it's the Net Present Value (NPV) of the leasehold payments, not the actual payments themselves.

Quick maths lesson : to take a £100 payment next year and calculate the NPV of it, the equation is 100/(1+DF) where DF is the discount factor...realistically any government usage would base the DF on interest rates + a bit. To take a £100 payment in year 2, the equation would be 100/((1+DF)x(1+DF)) etc etc

Couple of examples using a DF of 5.5% :
£100 per year for 125 years - the NPV of this is approx £1900, not £100x125 = £12500
For IanW's example - £20/yr for 950 yrs, NPV of this is approx £380.

I'm not a solicitor or tax expert, so can't comment if Chris and/or his solicitor is barking up the wrong tree, but would just say that the effect would not be as marked as one would initially think. Suspect the rules may have changed to stop people having artificially low sales prices, backed by onerous leases thereafter.

ChrisB_4

ok.. do I understand right then? that as I was saying at just over 118k you'll be paying the LD when your lease is 100 for 125 years (which mine is .. new build).

So watch out buying properties for 118 or 119k (especially new builds with long leases usually around 100 quid a year)!! as you might find yourself 1% of that out of pocket - incidentally you have 28 days from the moment you move in (not from buying the house) to pay the LD or else incur fines (incremental starting at 100 quid).

Dr_Tom

Hi all (first post here),

You've had me very concerned as someone in the process of buying a new build flat at £119,000 (125 year lease at £150 a year ground rent).

I've had a look at the explanatory notes with the Inland Revenue calculator and, if I understand them correctly, the value of the ground rent is not taken into account unless it reaches £600 a year. From the examples given it looks as if this is aimed primarily at businesses who might pay a low amount to buy premises but a larger ground rent.

It definitely isn't as simple as just multiplying the ground rent by the length of the lease and adding it to the purchase cost, thankfully!

ChrisB_4

maybe it's the 600 a year rule that counts. Looks like my solicitor need a kicking, as you say, maybe they're just not explaining fully, and it's something else.

Forget my "so watch out" for now..

ok Tom - let's ring our Solicitors

More info: it's the *Average* annual ground rent that matters.. and mine doubles every 25 years I think.. ends up after 100 years at 2,000 GBP - so what's the average of that lot over 125 years (as described in the tax notes)... more than 600 i fear.

Ian_W

Phew!!!
Thanks for that Chris. Even with a very small annual ground rent x a very long lease - it looked like rant at that !!!!!! Gordon time!!

I have seen Dr Tom's explanation elsewhere, only I'd forgotten it 'til he posted, but I'm sure he's right. It's to stop companies buying cheap to avoid SD but then paying huge GR's.

So don't give the solicitor too much of a kicking [enough trategically placed will do fine!] as we all have our Hamlet moments.

bunking_off

nah....he's a solicitor...go ahead and give him a kicking!!