selling house at below market value

I am thinking selling my house to a friend of mine. To reduce the stamp duty we were thinking of doing a deal to have the offical price less than market value. Then have the balance paid separetly. Is there any drawback to this. I know that if the house is used as an investment at a later date, more CGT will be due. Any comment are welcome

I dont think there is a drawback to selling the house below market value, and probably no issue as long as you declare the balance received to revenue

Unregistered said:

I am thinking selling my house to a friend of mine. To reduce the stamp duty we were thinking of doing a deal to have the offical price less than market value. Then have the balance paid separetly. Is there any drawback to this. I know that if the house is used as an investment at a later date, more CGT will be due. Any comment are welcome

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Selling the house below market value would imply that you are gifting the buyer the effective value of the discount which might give rise to a gift tax liability. Similarly if they buyer hands you a wad of cash in respect of the discount then this too might give rise to a gift tax liability. Either way I suspect that discounting the price to avoid stamp duty might constitute tax evasion or at least fall foul of the Revenue anti-avoidance measures if they twig this. Your respective solicitors would need to conspire to allow this to happen and the likelyhood of them facilitating dodgy dealings are slim. I suspect that Revenue would expect the sale price to be the market value and may calculate stamp duty on this as opposed to the discounted price regardless. In short, I suspect that this is not a runner or at the very least is not a prudent/legal course of action.

Is stamp duty not calculated on the figure from the official valuers report? Otherwise people could sell a €300k house for €100k and avoid stamp duty alltogther.

What we're actually think of doing is.
Swoping houses, theirs is worth about 80k less than me. So instead of valuing both house at 320k and 240k, to say that they are 270k and 190k instead.

Well ya need to think about this carefully - how will you declare the extra income to the revenue (or if audited) - it may mean that you may have to pay tax atteh full rate on the excess (plus a penalty). So in order to save your buddy aying extra stamp duty - you are putting yorself at risk.
ninsaga

At best there are tax (e.g. gift tax, stamp duty etc.) implications that have not been factored in. At worst this could constitute tax evasion or unacceptable avoidance. Best to get independent, professional advice on it. Even if s/he is not a tax expert I reckon that your solicitor will soon point out any flaw in this plan.

and no solicitor will advise you either seeing as they are agents of the Revenue as well as your legal representatives .

there is a special (low) stamp duty for land swaps if the effect of the land swap is to consolidate a farm, it does not apply to house swaps IIRC although it should IMO

Stamp Duty in a conveyancing transaction is payable on the market value of the property. The market value is what the property is worth on the open market. In a swap situation, stamp duty is payable by each of the purchasers on the full market value of each of the properties.

Undeclared cash creates problems e.g. non payment of Gift Tax, fraud, etc.,etc.

As Clubman says, going the route of being less than honest opens up all kinds of problems.

mf

When the stamp duty forms are sent for assessment to Dublin Castle for assessment by your solicitor, there is a part on the SD4(which is sent along with the stamp duty form) which asks various questions, one of which asks if the valuation is at full market value.

If that box is ticked no, then the reverse of the SD 4 asks how the valuation is calculated. They will often ask for a written valuation by an Auctioneer which will be examined by the Revenue official making the assessment.

We do not deal with properties, but we often have situations where individuals holding shares in companies transfer them at say, nil, or minimal value, usually to spouses or children, or brothers, sisters, etc. (Transfers to spouses are exempt) In these cases, we have to submit accounts for the companies which values the shares on either a profits or assets basis. Depending on how the assessor judges the valuation submitted, the stamp duty is due on the market value of the shares.

In a property transaction, it is even easier to ascertain the "market value".

If it was a case that you could just under value the properties, sure why would anybody pay stamp duty?


Also, if it is a case that you try and "hoodwink" the Revenue and it is later discovered, interest and penalties would become due from the original date of transfer.

As well as stamp duty being paid at the market value rate, Gift Tax would also be due by the recipient on the difference between the sale price and the actual market value rate by the recipient of the gift.

Good post MandaC - good to get a more detailed/authoritive insight into how these things work.

Thanks, Clubman.
Just to correct something on the above. The Form SD4 is used on the transfer of unquoted shares. In the case of residential property transfers it is the Form ST21(Particulars Delivered) which is lodged and a warrant for adjudication which would be required in cases where the property is transferred at less than the open market value.

MandaC

Hi MandaC,

Many thanks for your very informative posting. I'm thinking of swopping properties with the possibility of a price differential either side. I saw a later posting from Clubman mentionning that you pay half the stamp duty rate for a swop, then I saw another mentioning that you only pay it on the differential? Is it possible that you could clarify this for me?

As I said here...

dilemma said:

Hi MandaC,

Many thanks for your very informative posting. I'm thinking of swopping properties with the possibility of a price differential either side. I saw a later posting from Clubman mentionning that you pay half the stamp duty rate for a swop, then I saw another mentioning that you only pay it on the differential? Is it possible that you could clarify this for me?

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