Minimising Stamp-Duty on a Property Sale

If you sell shares in the company owning the house, the buyer would pay 0.5% stamp duty on the value of the shares, so within the £60-250k band, you'd save 2.5% on each sale. Sounds good. At first.

But they are prohibitive, aren't they? Suppose Tom owns a house worth £100k and wants to sell it to Dick. Dick knows he has to pay £3k stamp duty either way, so he speculatively says let's set up a company Dick Ltd and have it buy the house from Tom. Dick also pays survey and legal fees of £2k.

Seven years later Dick wants to move and Harry wants to buy the house, which is now worth £200k. Dick says to Harry, the house isn't for sale, you'll have to buy the company. Fine, says Harry, and he buys all the shares in Dick Ltd for £200k. Harry only pays £1k stamp duty and is eternally grateful to Dick for having used the company ploy to save him having to pay £6k stamp duty instead. But poor old Dick now finds he has to pay CGT on the shares. He's had a whopping £90k gain after a further £5k estate agency fees, and even allowing for the fact that he co-owned the company with his wife and the in-laws, so that four CGT exempt amounts apply (which by then has conveniently risen to £10k), there's still £50k gain to be taxed at probably at least 20%.

That's £10k tax to be paid by Dick and his fellow shareholders instead of Harry paying £5k more. Not much of a bargain, is it?

In message , Tim writes

Seems a decent compromise

The LTDCo bit could mess up any mortgage application as well.

In article , john boyle writes

Presumably nobody else is queuing up to buy this house, otherwise it could be lost to the OP for the sake of a few grand - which often pales into insignificance when the probability of not getting the house looms.

AIUI, it only works for the 'next' sale. It doesn't work for the first sale as the SD is payable when the property is 'sold' to the company.

Tim

You presume correctly - it is (as they say) - a niche proposition :-)

This possibility does, of course, need to be factored in...

Lots of useful food for thought in the thread thus far - thanks all!

Mark

Bingo! :-)

Mark

In article , Mark Hildyard writes

So... in the absence of another buyer, are the sellers likely to negotiate the £5K, or so, of the price, or will they hold out for the £260K?

It was the difference in stamp duty

so the vendor can have

260k less the difference in stamp duty.

From the buyers point of view the extra 10 on the price costs ~17k, so you can see why they wish to avoid the 70% effective tax rate.

Not to me it doesn't. Here we have a buyer baulking at paying an extra £5k tax, and the seller basically paying all of it instead by dropping the price by that amount.

Still, it's a point to move forward from. Instead of the price being £255k, it could be thought of as being £257k together with an agreement that £2k of the SD be paid by the seller. But instead of the seller actually paying it, he just discounts the price and has the buyer pay it in the normal way.

But now the price is only within £5k of the threshold, and it seems churlish that £5k extra tax should be payable simply for the price being £5k above the threshold. Anyway, £7.5k for fixtures and fittings is easier to justify than a much higher figure, so let it be agreed that the price for the house be £247.5k plus £7.5k for contents.

Hey presto, SD drops by £5k. Now, where have we got to? Seller has agreed to receive £255k which is privately considered to be £257k less £2k towards SD, and the buyer to pay £255k which is really £247.5k for the house and £7.5k for contents, and the seller still has just under £2.5k SD to pay, but as this is now much less than first feared, the buyer can afford to let the seller off his commitment to contribute £2k towards the stamp duty. So the deal is renegotiated as £250k (minus a pound) for the house plus £7,501 for contents. The seller gets £257,500, the buyer pays that plus £2,500 SD (minus a penny).

This way, the seller gets £2,549 more, and the buyer pays £2,600 less, than in the above "decent compromise" scenario.

It gets better the more they can dare attribute to the contents.

x-no-archive: yes

dont thnk seller will accept duty payable by the by=uer, as they would have had to paythis when they originally bough the property..

how about negotiating to pay less for the house, and buy the contents (carpets utilities etc) separately? total the same, but with less to vat man!

Or do what they do in Belgium and get 10K in cash and the rest from the mortgage :-)

Quite an eye opener seeing how much tax evasion goes on here.

Andy

"Ronald Raygun" wrote

How much would *you* dare? :-)

as in

Boy were we paying attention writing this reply!

In article , Ronald Raygun writes

This was always the case, if they can get the property price to £250K, the whole deal costs £5K less, but he didnt feel that £10K could be attributed to things other than the property. I dont think £7.5K has been mooted as reasonable either.

I'm not sure that an actual reasonable figure has been suggested by the OP for things other than the property. it may be interesting to hear what that might be - always remembering that the seller must agree that the amount is reasonable too.

Yeah - but that would hinge on the Sellers trusting/believing that they were actually going to receive the cash on top - since you could hardly write it into the contract, could you?!

Think that something involving offering to pay their fees + a fittings write-down sounds favourite approach for now...

Mark

Or maybe not any more :-)

But there's nothing really new here wrt purchases at 1 pound less than the limit. The revenue have always had the possibility of checking but they probably don't because the amount of work for the number of people that they would catch is not worth it. This is not going to change much.

Tim

It's the govt's own damn fault for making the rules so daft that you have to pay £5001 more if the price is £1 higher. There should be no discontinuities, instead there should be a taper from the lower to the higher rates, or the higher rate should apply to the excess, not to the whole amount.

I guess the intention was that most properties are below the 250k limit, and by erecting this fence with a discrete penalty for jumping over it, they would manage magically to stop the runaway house price inflation. Fools. Might have been more sensible if they put the rate up to 10% but at the margin, e.g. for a £250k house you pay £2.5k stamp duty (1%), and for a £300k house you pay £2.5k for the first £250k and 10% for the remaining £50k, £7.5k altogether.

That way the SD ramps up to £7.5k at £300k instead of jumping up to that value if the £250k limit is breached. Maybe even lower the threshold to £200k.

Are the days of these artificially high SD levels numbered? If house price inflation is tumbling, surely they can be hailed as having "done their job" but now outlived their usefulness. After all, reduced likelihood of being able to make a profit out of appreciation is enough of a disincentive to that kind of investor that the artificial 2% loss is an added disincentive no longer required.