PLEASE READ BEFORE POSTING

Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.

Overage vs ransom strip when selling

2

Comments

  • davidmcn
    davidmcn Posts: 23,596 Forumite
    Name Dropper First Anniversary First Post
    Overage isn't likely to be palatable to normal residential buyers (and certainly not to their lenders, assuming you want some form of security over the property). And the ransom strip just highlights the potential issue.

    Surveyors can assign some sort of "hope" value to anticipate future development but depends how theoretical it is at this stage. I am guessing that building the access road would involve demolishing the house? And that any planning consent (never mind actual development) would probably be years away?
  • maisie_cat
    maisie_cat Posts: 2,068 Forumite
    First Anniversary Name Dropper Academoney Grad First Post
    Either will put people off, I'm looking at the moment and just spotted a perfect property but with a 15 year overage clause.
    I read somewhere a few years ago where an overage was triggered by the buyer adding a shed to the land, it's just not worth the hassle. a
    Either keep the land as an investment, rent the plot for a couple of years until you get an idea of whether planning will be likely or sell it and get you hands on your inheritance in cash now.
    Remember any sniff of a housing estate behind the plot will make it plummet in value, so the only real option will be to make it part of the development
  • ProDave
    ProDave Posts: 3,721 Forumite
    First Anniversary Name Dropper Combo Breaker First Post
    The overage or uplift clause will be difficult to word. I.e it would be easy to word an overage clause that if they got PP to knock down the house and build 3 in it's place they would have to pay you. but I am not so sure it would be easy to word a clause if they sold a strip as an access road, or even knocked down the house to build the access road.

    I would choose the ransom strip. It only needs to be tiny, 6 inches would do. Make sure you fence it off with a fence each side of the strip, i.e 2 fences back to back. The garden would then reduce by a tiny amount and any buyer would not be bothered.

    Split the land title before you sell the house so it does not delay the sale, and the buyer does not get bothered with the paperwork of the split.

    Think also of access via a neighbour. Could they pass through your land, then take a turn to exit via a neighbours land to avoid the ransom trip? Would you also want a ransom strip between you and a neighbour? (could get "interesting" if it's a semi detached house)
  • moneyistooshorttomention
    moneyistooshorttomention Posts: 17,940 Forumite
    Mr.Jelly wrote: »
    Thanks for that! Wouldn't anyone with a family have a duty to maximize their return on any asset? Until we socialize land ownership and allocate it according to need, this is just what we do in this country.

    .

    Re-phrased to "Wouldnt anyone have a duty to maximise their return....".

    Maximising either applies to everyone (including those without families) or applies to no-one.

    Just being consistent....
  • Mr.Jelly_2
    Mr.Jelly_2 Posts: 14 Forumite
    00ec25 wrote: »
    only the buyer pays SDLT, not the seller

    True but irrelevant, in as much as the buyer writes the cheque, but in effect any extra surcharge on the buyer would be reflected in a lower sum passed on to the seller.

    If, as I suspect, the overage pushes the taxable amount into a higher SDLT tax band then this could be quite disadvantageous to me too.
  • Mr.Jelly_2
    Mr.Jelly_2 Posts: 14 Forumite
    moneyistooshorttomention wrote: »
    Re-phrased to "Wouldnt anyone have a duty to maximise their return....".

    Maximising either applies to everyone (including those without families) or applies to no-one.

    Just being consistent....

    Yawn,.... Get a life mate!
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    Combo Breaker First Post
    edited 5 October 2017 at 9:05PM
    Mr.Jelly wrote: »
    True but irrelevant, in as much as the buyer writes the cheque, but in effect any extra surcharge on the buyer would be reflected in a lower sum passed on to the seller.

    If, as I suspect, the overage pushes the taxable amount into a higher SDLT tax band then this could be quite disadvantageous to me too.
    heh? are you confused how SDLT works?

    the seller does not receive a "lower sum". The seller gets the price they agreed to sell it at. The buyer pays any SDLT due on that amount as a figure over and above the selling price.The SDLT is then paid to HMRC by the buyer. The seller does not pay the tax from the money the seller receives.

    I agree that because of the step change threshold applicable to SDLT there are certain selling prices where buyers will seek to reduce the asking price to below the threshold and thus avoid having to pay extra tax, but those points are relatively narrow and there are only 4 of them.

    take the example of a selling price of 200k....the buyer pays 200k to the seller and over and above that sum also pays (200-125) x 2% = £1,500 SDLT to HMRC. So the buyer spends a total of 201,500 and the seller receives 200k. That is not a "lower sum", the seller agreed to sell it 200k and gets 200k.

    If the seller prices on the basis of the final cost to the buyer is 201,500 and therefore the seller is "only" getting 200k because of the impact of the tax then the item being sold is only worth 200k, not the 201.5 the seller thinks he should have got, and given SDLT applies to both overage or ransom strip purchase prices I fail to see why it is such an issue for you.
  • glasgowdan
    glasgowdan Posts: 2,967 Forumite
    First Post First Anniversary Combo Breaker
    As a buyer I'd find this disgusting and wouldn't dream of buying it.

    If someone buys a used car, renovates it and increases its value it's unheard of that the former owner would get any of the profit. Why do some people accept it with property?
  • Mr.Jelly_2
    Mr.Jelly_2 Posts: 14 Forumite
    edited 5 October 2017 at 9:34PM
    00ec25 wrote: »
    heh? are you confused how SDLT works?

    the seller does not receive a "lower sum". The seller gets the price they agreed to sell it at. The buyer pays any SDLT due on that amount as a figure over and above the selling price.The SDLT is then paid to HMRC by the buyer. The seller does not pay the tax from the money the seller receives.

    I agree that because of the step change threshold applicable to SDLT there are certain selling prices where buyers will seek to reduce the asking price to below the threshold and thus avoid having to pay extra tax, but those points are relatively narrow and there are only 4 of them.

    take the example of a selling price of 200k....the buyer pays 200k to the seller and over and above that sum also pays (200-125) x 2% = £1,500 SDLT to HMRC. So the buyer spends a total of 201,500 and the seller receives 200k. That is not a "lower sum", the seller agreed to sell it 200k and gets 200k.

    If the seller prices on the basis of the final cost to the buyer is 201,500 and therefore the seller is "only" getting 200k because of the impact of the tax then the item being sold is only worth 200k, not the 201.5 the seller thinks he should have got, and given SDLT applies to both overage or ransom strip purchase prices I fail to see why it is such an issue for you.

    Well, if the farmer can realise development land value on the plots for 30 houses as a result of gaining access to the main road through my property, he could be in for a good wedge of notes. More than a million quid perhaps, so perhaps the overage would be of the order of a third of that uplift. If that was added to the sale value in the SDLT assessment, then the liability could be pretty substantial I imagine. Especially as the postulated developer and his money may not show up for several years. The question we have not resolved is what tax liability is created by a potential overage payment and when is it due.
  • Mr.Jelly_2
    Mr.Jelly_2 Posts: 14 Forumite
    glasgowdan wrote: »
    As a buyer I'd find this disgusting and wouldn't dream of buying it.

    If someone buys a used car, renovates it and increases its value it's unheard of that the former owner would get any of the profit. Why do some people accept it with property?

    Yes, well in this case the increase in value would be an effectively unearned windfall due to a change in planning policy mainly benefiting the farmer whose land shoots up in value by the stroke of a pen. I wouldn't say anyone has a greater moral claim on that money than anybody else.
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.2K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.7K Spending & Discounts
  • 235.3K Work, Benefits & Business
  • 608K Mortgages, Homes & Bills
  • 173.1K Life & Family
  • 247.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards