House buying question

Why would they need to give you a 'gift' of 30k (even if its 'virtual')? The house is worth whatever the seller thinks (unless this is an obvious scam to avoid IHT or similar....is it?). A valuation is just one persons opinion, its not money in the bank. If its just that the seller wants to do you a favour, I dont see you'd have a problem. More to pay on CGT later but if its your main residence thats not an issue anyway.

IANAL but I'm pretty sure that arrangement would be considered by the Revenue to be the tax-evasion that it is.

David

I was told a while ago that the IR have details of house particulars and therefore the original asking price. They are also aware of the selling price. If there's a large discrepancy they start asking questions.

If it looks like a scam it probably is!

What tax is being evaded in this case? (house valued at 150k being sold for

Possibly Stamp Duty. No duty is paid on houses sold for less than 125k - but a 150k house is taxed at 1% - i.e. 1,500.

I don't know about this particular case, but I know the IR take a dim view of falsifying the value of fixtures and fittings in order to avoid/reduce stamp duty.

Suppose you are going to sell me a house for its true value of 150k - and signal your intention to leave behind a few threadbare carpets. I then ask you to sell me the house for 120k - on top of which I will pay you 30k for the carpets. That way you still get your 150k - and I avoid having to pay any stamp duty. *Except* that the IR are going to want to see proof that the carpets are *really* worth 30k.

Maybe it's a scam to pretend to a lender that it's worth more than it really is, i.e. it's effectively being sold for 120k, but he wants to borrow

i`m hoping that IHT isn`t going to come into it - the seller is only in their early 50`s. We`re trying to ensure that even in the worst case that they do die in the near future that any tax liabilities are minimised.+

Had a few estate agents round to get a valuation, they`ve all come up with similar figures, between 145k and 150k. That`s what similar but slightly smaller houses have been going for in the area anyway.

The fixtures and fittings in the house could easily make up 10,000, maybe more. That`s at sensible prices, nothing inflated.

I just fail to see why I should pay stamp duty if it is at all possible to avoid paying it. We`re in the situation that the seller will go along with pretty much any system we can think of to sell us the house that will minimise the final cost to us, and 1,500 is a fair amount of money to effectively waste on stamp duty if it isn`t absolutely rtequired that we pay it.

Oops, I had failed to notice that you mentioned the seller was a family member. That's why, it seems, he is prepared to sell it to you at a discount instead of waiting for a "real" buyer to come and give him full whack for it.

In that case, it being a transaction not at arm's length, chances are it could well not escape stamp duty, because even if in fact you are only paying 120k for it, the SD office can substitute market value for the actual sale price, as they will say what really happened is that he "gave" you 30k in order to help you buy it for 150k.

and if he didnt? They'd have to prove that, I hope.....or arew e ina police state yet? I see we seem to be getting into that mentality in this thread, 'obeying' the law even if there specifically isnt one or if it isnt being broken.

Exactly, and depending upon the state of the house, needing redecoration etc, could be worth substantially less anyway. Or there are many cases where a house is sold at less than optimum value for reasons such as a quick sale. AFAIK there isnt an obligation to sell a house at the most you can get for it just so you can maximise tax to the government!! (yet?) though thats what some posters to this thread seem to be arguing.

However, going back to your initial reason, read the thread earlier about someone inheriting half a house. Amateurish reason that was done was 'to minimise tax' but it seems they'll end up paying it instead. Similarily, your transaction *will* get into trouble if its something like you buy the house but the person selling it to you continues living in it .In those circumstances you can end up paying tax where you otherwise wouldn't especially if the value of the estate is low. Will you be living in the house, or will you rent it, or sell it or what?

I will be living in it with my partner. The current owner is living elsewhere, which can be proven (if needed for SD etc) by having her name on bills etc.

sounds like a good deal then, you get a house at good value, the relative gets cash and their.someone's wishes re disposal of assets carried out, and you should be OK for CGT when you sell it as it would be your main residence and you save 1500. In the unlikely event someone queries it, I think the onus would be on them to prove that you secretly xferred money between each other.

And in the case of 'someone' qurying it, who would this be, AFAIK there isnt a govt dept that looks at house purchases and compares them to what the house 'should' have been sold for. Also, its not like its massively reduced, its maybe 15% below what you *might* get if you were prepared to wait a long time for a buyer which your relative obviously wasnt, hence it would be unlikely to appear on our mythical govt depts radar. I am involved in a house sale at the moment, and although its valued at 'X' there are very similar houses within 1/2 mile up and down the same road for +/- 10% of X. The difference is quite subjective in a number of cases,a nd the actual value will also be dependent upon the final buyer...maybe they will _really_ want it, maybe they wont be too fussed, maybe they'll get more than they expect from the sale of their property, maybe less. All these features could easily affect a price by 10-15%, so its silly (IMHO) to pretend that the house actually has a real value until at the very least, you have an offer on it for that value.

Pretty much my opinion. There are similar houses for sale at 155k, and getting no interest. The valuations have tended to be "145k - 150k, get haggled down 5k-10k and go from there", with the expectation of waiting quite a while. In this case, you don`t end up too far from the 120k we`d like to pay for the house (and the seller will take), and they`ve got a guarenteed sale as soon as we can get everything through :-)

I think that is extremely unlikely. Either you are including things which are not F&F, like fitted kitchen and bed room which are deemed part of the structure and are thus dutiable. Or the deal includes furniture which is included in the sale but which doesn't count towards the 'value' of the house.

tim

Also, I believe, the 30k discount would count as a 'potentially exempt transfer' for inheritence tax purposes. If the seller dies within 7 years it will count as part of their estate and will potentially increase the tax bill by £12,000.

Robert

The house isn`t going on the market at all, the valuations are from estate agents coming round, having a look and giving us their opinion. The IR may well be able to track down the sale price, but are they so all-pervading that they know what has happened privately in your own home yet? :-)

"Tumbleweed" wrote

They don't need to do that comparison first - they can just look at the final sale price:-

AIUI, HMRC actively "target" house sales which are at a sale price just below a Stamp Duty threshold, for subsequent investigation.

They can *then* try to ascertain a realistic value for the house...