Gifted equity deposit - SDLT 1 form

Pityakka124 · 13 October 2018 at 9:39AM

We are buying my grandparents house with the deposit being in the form of gifted equity.

Should the sale be declared on a SDLT 1 form as the ‘sale value’ with the gifted equity on top or should it be declared as the ‘sale value’ minus the gifted equity?

If it makes any difference, the figures are;
House valued at 118k
Gifted equity deposit 15k

Thanks!

davidmcn · 13 October 2018 at 9:44AM

It's the net consideration, so you deduct the "gift".

Pityakka124 · 13 October 2018 at 9:53AM

Thanks.

I’m a little confused then, as our lender has said they can only lend against the registered value. On their website they specifically state they deal in gifted equity.

If that’s the case, I’d still need to find the difference between actual value and sale value?

I.e our offer is 87.5% LTV. If it’s registered as 103k, they can only borrow us 87.5% of that, then where does the shortfall come from?!

amnblog · 13 October 2018 at 10:07AM

Why is your Solictor not handling this.

Pityakka124 · 13 October 2018 at 10:16AM

They are, there just seems to be confusion between the lender, our broker and our solicitor. I was just wanting some advice independent of those involved

If it’s the net consideration, then I think there may be some confusion at the lender, perhaps? It was described as gifted equity deposit from the beginning, therefore their statement saying they can only lend against the registered value is potentially not right? They are borrowing against the value of 118k which is stipulated in black and white on our formal offer. The difference between our loan and the value is gifted equity. I can’t fathom why there seems to be any confusion, it seems fairly straight forward? Maybe I’m being naïve thinking that? As I say, on their website it specifically states they allow gifted equity deposits.

davidmcn · 13 October 2018 at 12:33PM

What does your lender think they mean by "registered value"? It's probably not the same as the net consideration for SDLT purposes.

Pityakka124 · 13 October 2018 at 3:52PM

From what I have read in emails between all parties, the lender is considering the ‘registered sale value’ as being the same as the the value of the net consideration on the SDLT form. When in my eyes the reality is the house is being sold at a value of 118k, 15k is being gifted as equity and the net consideration is 103k. Hopefully on Monday things can be cleared up

Blueoctopus · 13 October 2018 at 3:55PM

Hi,
We bought our house with gifted equity from my parents. The valuation was £180, 000 but my parents gifted the £90, 000 equity they had in the house.
The sale price was recorded everywhere it needed to be as £180, 000 but only the £90, 000 changed hands (+solicitors costs from our savings).
The SDLT form said 180,000 as advised by our solicitor but we were not liable as FTB anyway.
The building society called it a consessionary purchase.

SDLT_Geek · 13 October 2018 at 4:21PM

Here are some thoughts on SDLT and "gifted equity" transactions, gifted deposits, concessionary sales and purchases at undervalue.

First I should explain what I am not talking about. I have little to contribute as to which lenders will lend against the various arrangements, how much they lend or what they call the arrangements. They manage to cause confusion by using the word "deposit" in odd ways.

Nor am I talking about developers selling new houses trying to maintain the headline selling price by offering a "gifted deposit" or other incentive.

I am talking of cases where there is an act of generosity, usually between parents (sellers) and children (buyers) whereby the buyers end up with a property having paid less than its market value out of their own money / money they are borrowing.

Concessionary purchase / transfer at undervalue / gifted equity

This arrangement is as simple as the sellers selling for less than the market value. The contract and the transfer record the amount of cash passing. SDLT is then based on this lower figure if there is nothing else the buyers are giving in return.

This is simple, except that not all lenders will allow it to be done this way! They also confuse things sometimes by talking about the "deposit" in an inconsistent way.

Gifted deposit

If the purchase is structured as a "gifted deposit" then the contract and transfer will record a higher figure, often the market value. Someone gifts the buyers cash which the buyers use to pay the sellers. SDLT is then due on that full stated sum.

It is easy to follow this if it is a rich uncle and aunt who gift the money to the buyers for the buyers to pay to the sellers.

But often the gift is provided by the sellers. "Real money" might not pass for the amount of the gift from the sellers to the buyers, as it would only have to be paid back as part of the purchase price. But a lender will often require the sellers to sign a document confirming that the money has been gifted. The "chargeable consideration" for SDLT is then the full gross sum treated as paid. The gift and the gross price might be recorded on a completion statement. Or the "gift" (without money actually passing) creates a debt owed by the sellers which is then extinguished when the property is transferred by the sellers (the chargeable consideration is then the actual cash passing plus the amount of the debt then extinguished).

But

Lenders sometimes confuse things by using terms like "gifted equity" "gifted deposit" and "deposit" loosely. The keys to securing an SDLT saving are that:

the contract and transfer can state the lower cash sum passing to the sellers
no document is required saying that a gift of cash is made to the buyers
the lenders are willing to accept the property as security when it is transferred at a price less than its market value.

Pityakka124 · 15 October 2018 at 10:58AM

My solicitor is wording as such that if there’s no physical exchange of cash, then the SDLT form MUST stipulate the lower amount. He won’t budge on this. He said if they’re audited in the future, they must prove where the deposit came from. I think the lender and solicitor just arent singing from the same hymn sheet. My grandparents have already signed gift declarations etc... if the lender is happy for the arrangement, then legally the solicitor can record the transaction as 118k?

Pityakka124 · 15 October 2018 at 3:35PM

SDLT_Geek wrote: »

Here are some thoughts on SDLT and "gifted equity" transactions, gifted deposits, concessionary sales and purchases at undervalue.

First I should explain what I am not talking about. I have little to contribute as to which lenders will lend against the various arrangements, how much they lend or what they call the arrangements. They manage to cause confusion by using the word "deposit" in odd ways.

Nor am I talking about developers selling new houses trying to maintain the headline selling price by offering a "gifted deposit" or other incentive.

I am talking of cases where there is an act of generosity, usually between parents (sellers) and children (buyers) whereby the buyers end up with a property having paid less than its market value out of their own money / money they are borrowing.

Concessionary purchase / transfer at undervalue / gifted equity

This arrangement is as simple as the sellers selling for less than the market value. The contract and the transfer record the amount of cash passing. SDLT is then based on this lower figure if there is nothing else the buyers are giving in return.

This is simple, except that not all lenders will allow it to be done this way! They also confuse things sometimes by talking about the "deposit" in an inconsistent way.

Gifted deposit

If the purchase is structured as a "gifted deposit" then the contract and transfer will record a higher figure, often the market value. Someone gifts the buyers cash which the buyers use to pay the sellers. SDLT is then due on that full stated sum.

It is easy to follow this if it is a rich uncle and aunt who gift the money to the buyers for the buyers to pay to the sellers.

But often the gift is provided by the sellers. "Real money" might not pass for the amount of the gift from the sellers to the buyers, as it would only have to be paid back as part of the purchase price. But a lender will often require the sellers to sign a document confirming that the money has been gifted. The "chargeable consideration" for SDLT is then the full gross sum treated as paid. The gift and the gross price might be recorded on a completion statement. Or the "gift" (without money actually passing) creates a debt owed by the sellers which is then extinguished when the property is transferred by the sellers (the chargeable consideration is then the actual cash passing plus the amount of the debt then extinguished).

But

Lenders sometimes confuse things by using terms like "gifted equity" "gifted deposit" and "deposit" loosely. The keys to securing an SDLT saving are that:
the contract and transfer can state the lower cash sum passing to the sellers

no document is required saying that a gift of cash is made to the buyers

the lenders are willing to accept the property as security when it is transferred at a price less than its market value.

I think I’m getting a clearer picture now.

The lender explicitly state they accept gifted equity.

The lender have then stated they can only borrow against the registered amount. In this case, the net consideration.

This effectively means we’d need a 100% mortgage or to raise the deposit ourselves. This defeats the purpose of a gifted equity deposit.

They have instructed a valuation, the surveyor has valued the property at 118K, therefore they have the security that the property is indeed worth more than we are purchasing for.

I think they need to clarify their policy on ‘gifted equity’. I’m hoping this is resolved soon. It seems fairly straight forward to me and to our solicitor. The lender however, not so straight forward....

Gifted equity deposit - SDLT 1 form

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