Can vendor pay the stamp duty for the Buyer?

L

Legin

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Hi. I am currently selling my home for 350,000. I've had a few FTB's who were interested, but who were put off by the stamp duty of approx 10K. Obviously banks do not loan buyers money to pay the stamp duty, so I was wondering if I could agree with the buyer to sell the house for 360K instead (10k more than I want) and then "Gift" them back 10K just after the sale had gone through. This would mean that they wouldn't have to come up with the stamp duty up-front. They have received loan approval for much higher amounts, but the stamp duty is limiting their ability to buy a 2nd hand home. This of course is subject to a valuer's report etc. But assuming the bank were agreeable to a mortgage of 360,000, are there any legal implications of me giving them back the money? (Essentially this is a round-about way of getting the stamp duty added onto their mortgage but avoids the normal rules, i.e. surely I can do whatever I want with the money I get for the sale, and if I want to give away 10K that's completely upto me). Any thoughts?
 
it's not legal - you are evading stamp duty. i was a first time buyer who bought my house for 325,000 - i paid 10k stamp duty straight up. this really annoys me how people will go to such lenghts to avoid paying stamp duty! surely if they are spending 350,000 on a house, they must have some savings or capacity to get a loan from another source from the stamp duty?
 
The stamp duty will have to be paid to the solicitor on closing AFAIK so they (the buyers) will still have to come up the €10k upfront.

Speaking of solicitors, I would be surprised if either your solicitor or the buyer's would contenance being party to such a scheme, but maybe I'm missing something-but it looks to me like an artificial transaction.
 
eimear25 said:
this really annoys me how people will go to such lenghts to avoid paying stamp duty!
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No ranting please-unless the scheme is explicitly illegal, there is nothing necessarily 'wrong' with it.
 
Strangely enough I saw an advert in the Indo about 2/3 months back for a swanky house going for maybe a million somewhere down the country that explicitly stated that the owners would do the exact same as the OP has outlined.

At the time I thought this was strange but when you think about it there is no tax evasion as the stamp duty does get paid, indirectly by the buyer. The only advantage is, as the OP outlined, that you can, possibly, get a loan for the stamp. I say possibly because at the end of the day the bank will only lend the buyer so much and will value the house independantly.

Perfectly ok by my book.
 
Interestingly, this isn't a scheme to avoid stamp duty. You'd end up paying slightly more, since the duty would be calculated on the declared value of the transaction, which would be higher. So the Revenue can't object.

It's certainly better than the other scheme which seems to be common -- of the purchaser giving the vendor cash under the table to avoid reaching a higher stamp duty band. That is illegal. But I don't know about your proposal.
 
Correct me if I'm wrong, but if you get a loan for 360,00 would you not then owe stamp duty on 360 rather than 350? Although, I suppose it would only be a few hundred quid.
 
Very clever on your part - not something I would have thought of. Don't think that the buyer would need a loan as the solicitor has 30 days to pay the stamp duty after the sale has closed. Do be careful though for two reasons:

1. As Mugs Game mentioned the stamp duty you pay will be slightly higher
2. If this is not your PPR, you are paying an extra 2k in CGT.

Obviously there are no gift tax implications as it is only 10k.
 
Art said:
Very clever on your part - not something I would have thought of. Don't think that the buyer would need a loan as the solicitor has 30 days to pay the stamp duty after the sale has closed.
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Of course the buyer would still need a loan, when they get the gift they still have to pay the stamp duty with it. That's the whole point.
 
You'd be relying on the mortgage valuation to be €360,000 but assuming it's OK then I can't see the problem although the purchaser is at risk if you decide not to give them back the €10,000. What guarantee will you give them?

Sarah

www.rea.ie
 
Sherman said:
Also the purchaser will be liable for Gift Tax at 20% on the gift from you.
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They won't be, unless you have given them previous gifts in the past, as an exempt threshold of approx €23,000 applies for gifts between non-relatives.
 
1 You would have to make sure that there was nothing in the small print of the loan agreement which prevented this. If the lender knew that you were requesting more money to indirectly pay stamp duty do you think they would approve this ??
2 Also, personally I wouldnt trust the vendor (a stranger) to gift me the money back for the stamp duty.
 
As the OP pointed out the perspective purchaser is having little trouble in getting the mortgage - probably because they are getting 100% from the bank. The problem is that they do not have the stamp duty amount. Therefore the process is as follows : Purchaser pays vendor 360k for the house on day 1. Purchaser has 30 days to pay stamp duty. Between day 1 and day 30, vendor pays the purchaser's stamp duty.
 

Unless there is anything illegal about it, which there doesn't appear to be so far (but I would be interested to hear what one of our solicitor posters has to say), then I would agree with wavelength on the above two points.

On the first one, the difference of €10k is probably not going to be obvious to the bank, i.e. if someone says a house is worth €360k instead of €350k then the bank is likely to agree in most cases (or their valuer would)-seems reasonable?

On the second point, I'd sure want a written contract to verify the transaction-which would have to be drawn up by a solicitor (if they were willing) I guess?
 
Some solicitors require stamp duty to be paid before closing as well so you would want to make sure. Good idea though.
 
No gift tax liability as the total is under €23,000 but is it just a gift ?????

I believe it is a cost of sale or an expense to the vendor , as is the estate agents fee, and that the vendor could claim tax relief on it at the marginal rate if the property were an investment property rather than a PPR or else could reduce their CGT liability on the disposal when total expenses are calculated so the profit can be calculated for purposes of CGT liability calculation .
 
Works in theory - may prove troublesome in practice.

As a practicing solicitor, I work hard at not getting involved in elaborate schemes that end up being more work than they are worth. The only fool proof way of doing this is to draft the Contract so that it is clear in the Contract that the purchase price of E360K is comprised of house value of E350K and a pay back gift of E10K for stamp duty - so its all there in the contract and the contract can be enforced against either party in the Courts. Whats the problem? The Bank will only want to lend the value of the property, not the stamp duty and I think they will baulk at lending the stamp duty - because of the potential risk that if they have to repossess that the house value will be less than the mortgage.

mf
 
Useful mf1-and much as I expected.

Would it not be possible to draft a separate (conditional) contract for the gifting of €10,000?
 
Would there be a potential element of fraud on the bank? The purchaser would be borrowing 360K ostensibly for a house purchase price but only using 350K for the house and 10K for the stamp duty therefore they are not being entirely honest with the bank about the purpose of the loan.
 
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