Can I avoid stamp duty by buying property & contents separately?

[comanche]

Hi,
Quick question - can first time buys go slightly over the 317,500 limit for a property and still be exempt from stamp duty if they write the excess as contents of the house i.e. white goods. E.g. could a first buyer pay 319000 and write off 1500 as contents so as not to pay stamp duty?

Thanks.

 

[MOB]

Re: Stamp Duty

No, sorry; you can't do that. The total price including contents determines the rate of stamp duty.

 

[ClubMan]

Re: Stamp Duty

Is the VAT exclusive price of the property relevant in this or other cases of determining the SD bracket/bill?

 

[ClubMan]

Re: Stamp Duty

Oh - as it happens my question was answered here. The price of the property less VAT is relevant for the determination of stamp duty (bracket and amount) on a new house only.

 

[npgallag]

Re: Stamp Duty

another question on SD...if say 2 First time buyers were buying a property over SD limit...and are paying half each...will they be liable for SD..??

 

[eimear25]

Re: Stamp Duty

yes, stamp duty is calculated on the price of the house, no matter how many people are buying

 

[Dowee]

Re: Stamp Duty

One way to get around this is to pay part of the purchase in cash or cheque. This is of course not actually legal afaik, however I do know people who have done it. It also requires the solicitors drawing up the contracts for the lesser price, etc. which can all be messy I'm sure, but again as this happens they are obviously not completely adverse to doing it. The calculation of stamp duty costs encourages people to take this option imo though.

Before someone jumps down my throat I'm not advocating doing this, I'm just pointing it out.

 

[ClubMan]

Re: Stamp Duty

One way to get around this is to pay part of the purchase in cash or cheque.

This is irrelevant since it is the fair market value and not the (possibly discounted) purchase price which determines the stamp duty band and charge.

This is of course not actually legal afaik,

There is nothing illegal about selling a property for a discount or gifting money to a stranger but there are tax implications - e.g. as above in relation to how the SD rate and amount is determined and gifts would be assessable for capital acquisitions/gift tax.

It also requires the solicitors drawing up the contracts for the lesser price, etc. which can all be messy I'm sure,

However it is illegal to draw up a fraudulent contract and to do so would involved the collusion of the buyer, seller and their respective solicitors and possibly other parties. Such a move is very very foolish (not least of all because the number or parties to this offence would increase the likelyhood of it eventually coming to light and being pursued by the relevant authorities) and would not be facilitated by most individuals or any reputable legal professionals.

The calculation of stamp duty costs encourages people to take this option imo though.

No excuse in my opinion.

 

[Dowee]

Re: Stamp Duty

This is irrelevant since it is the fair market value and not the (possibly discounted) purchase price which determines the stamp duty band and charge.

Having never paid stamp duty I'm not overly familiar with the exact details, however except in unusual circumstances (eg. sales between family members etc) I imagine the "fair value" is generally taken by the revenue as the purchase price per the contracts. But I could be wrong on that. So if in this case the purchase price is put down as a slightly reduced amount then this would be taken as the fair value and thus the stamp duty calculated on that amount. So I don't think what I said is irrelevant.

There is nothing illegal about selling a property for a discount or gifting money to a stranger but there are tax implications - e.g. as above in relation to how the SD rate and amount is determined and gifts would be assessable for capital acquisitions/gift tax.

No one is saying a anything about selling the property for a discount or giving gifts so this is irrelevant.

However it is illegal to draw up a fraudulent contract and to do so would involved the collusion of the buyer, seller and their respective solicitors and possibly other parties. Such a move is very very foolish (not least of all because the number or parties to this offence would increase the likelyhood of it eventually coming to light and being pursued by the relevant authorities) and would not be facilitated by most individuals or any reputable legal professionals.

I completely agree. However I know a number of people who've done this so there are obviously some estate agents and solicitors who are willing to do this.

No excuse in my opinion.

I agree, I do think the system should be changed however.

 

[ClubMan]

Re: Stamp Duty

What I meant by irrelevant is that stamp duty could not be legitimately avoided by structuring the sale in the way that you point out above. The SD band and amount is set by the fair market value of the property. Artifically structuring the sale with a lower nominal price/value and paying the balance in cash/cheque is irrelevant. At best it simply introduces other tax considerations (e.g. gift tax). At worst it involves tax evasion.

Having never paid stamp duty I'm not overly familiar with the exact details, however except in unusual circumstances (eg. sales between family members etc) I imagine the "fair value" is generally taken by the revenue as the purchase price per the contracts. But I could be wrong on that. So if in this case the purchase price is put down as a slightly reduced amount then this would be taken as the fair value and thus the stamp duty calculated on that amount. So I don't think what I said is irrelevant.

If the sale price is significantly below what would be expected to the fair market value (or the valuation by an auctioneer) then Revenue would have questions to ask if this came to light.

No one is saying a anything about selling the property for a discount or giving gifts so this is irrelevant.

If the property is sold (on the contracts) for a price that is discounted with respect to the fair market value and the balance to the fair market value is paid in cash or by cheque then this is exactly what we're talking about.

I completely agree. However I know a number of people who've done this so there are obviously some estate agents and solicitors who are willing to do this.

Anybody (individuals or professionals) engaging in or facilitating tax evasion should be reported to the relevant authorities as they are breaking the law and screwing all tax compliant citizens. This is an example of a real rip-off unlike some of the stuff that tends to be blamed on "Rip-Off Ireland" these days.

I agree, I do think the system should be changed however.

This may be a separate discussion but what specifically should be changed?

 

[Dowee]

Re: Stamp Duty

What I meant by irrelevant is that stamp duty could not be legitimately avoided by structuring the sale in the way that you point out above. The SD band and amount is set by the fair market value of the property. Artifically structuring the sale with a lower nominal price/value and paying the balance in cash/cheque is irrelevant. At best it simply introduces other tax considerations (e.g. gift tax). At worst it involves tax evasion.

Who decides what the fair value is? Are implying that the revenue independently value the house and base the stamp duty on that? As I doubt this is the case, I imagine the value is taken as the contract price (unless obviously different from the market value).

Anyway your efforts to cloud the issue aside this is a way to avoid stamp duty, however it does require false contracts and tax evasion, amongst other things. I said from the outset that it wasn't legal.

This may be a separate discussion but what specifically should be changed?

A fairer system in my opinion would see stamp duty on a stepped basis as below, rather than once you go over the limit you pay the whole amount at that rate.

up to 100k - 0%
100k - 200k - 3%
200k - 300k - 4%

So if you buy a house for 250k you pay:
100 @ 0%
100 @ 3%
50 @ 4%

 

[ClubMan]

Re: Stamp Duty

Who decides what the fair value is? Are implying that the revenue independently value the house and base the stamp duty on that? As I doubt this is the case, I imagine the value is taken as the contract price (unless obviously different from the market value).

Like many taxes SD is effectively self assessed so the individual (through their solicitor or whatever) must use the fair market value of the property when processing the transaction. If there are obvious discrepancies then Revenue could well insist on independent valuation.

Anyway your efforts to cloud the issue aside this is a way to avoid stamp duty, however it does require false contracts and tax evasion, amongst other things. I said from the outset that it wasn't legal.

I am not clouding the issue - I am attempting to clarify it. And it's a long time principle on AAM that we don't condone or facilitate tax evasion so perhaps you contribution should have been removed in the first place since it does the latter?

A fairer system in my opinion would see stamp duty on a stepped basis as below, rather than once you go over the limit you pay the whole amount at that rate.

up to 100k - 0%
100k - 200k - 3%
200k - 300k - 4%

So if you buy a house for 250k you pay:
100 @ 0%
100 @ 3%
50 @ 4%

Yes - there were several lengthy discussions on AAM in the past (prior to the last couple of budgets in particular) dealing with the "disruptive" effects of stamp duty on the property market and on second hand sales and trading down etc. with this very suggestion (of stamp suty charged on the balance above a threshold rather than on the lot) being made. However these discussions predated the extension of exemptions to first time buyers of second hand properties under €317,500 as well so maybe that addressed part of the perceived problem?

 

[ribena]

Re: Stamp Duty

You can of course off-set contents in your Contracts and I wouldn't see that as as fraudulent act on the part of the Estate Agent or Solicitor. My Dad's an Estate Agent and I work for a Solicitor and neither are crooked! The vendor is looking for a certain figure, the buyer pays that sum and the Solicitor just draws up the Contract for whatever the agreed figure is minus €8 or €10k for contents if it helps the purchaser buy the house. In a lot of cases, sales could be lost because the purchasers genuinely can't afford to add on the cost of Stamp Duty on top of the Purchase price. You can only borrow so much.....

 

[ClubMan]

Re: Stamp Duty

You can of course off-set contents in your Contracts and I wouldn't see that as as fraudulent act on the part of the Estate Agent or Solicitor.

You should check out some of the recent discussions on this topic as things may not be as clear cut as people originally assumed in this respect (i.e. splitting the sale between contracts for the property and contents/fixtures/fittings). As far as I know the Law Society issued an information bulletin about this issue and the tax implications. In short the general gist seemed to be that while people were assuming this was legitimate it is not after all. People who have done it in the past would have outstanding liabilities.

Obviously if a buyer cannot afford a purchase due to stamp duty or other expenses then that's just the way it is and it's no excuse for resorting to illegal tax evasion measures.

Update: see [broken link removed] for the Law Society bulletin to which I referred above.

 

[RainyDay]

Re: Stamp Duty

You can of course off-set contents in your Contracts and I wouldn't see that as as fraudulent act on the part of the Estate Agent or Solicitor. My Dad's an Estate Agent and I work for a Solicitor and neither are crooked! The vendor is looking for a certain figure, the buyer pays that sum and the Solicitor just draws up the Contract for whatever the agreed figure is minus €8 or €10k for contents if it helps the purchaser buy the house. In a lot of cases, sales could be lost because the purchasers genuinely can't afford to add on the cost of Stamp Duty on top of the Purchase price. You can only borrow so much.....

Hi Ribena - Please don't expect us to believe that the estate agents and solicitors are doing buyers some kind of favour by facilitiating this kind of tax evasion. Let's get back to basic economics - supply & demand. Prices will increase to meet the available supply. By facilitating tax evasion and increasing the supply (i.e. the funds available to buy), the professionals are simply increasing the prices of the property.

Prospective buyers considering this route who don't take the moral & ethical issues seriously might like to consider the practical difficulties. You can't enforce an illegal contract - so if the seller does a runner with your extra cheque and doesn't hand over the mythically valued contents, you will have no legal avenues open to you to if you wish to enforce that debt.

 

[mikeyny]

Save the difference between 3 and 4% now or pay CGT of 20% on the fake figure later ?

Stamp duty could l be the next big investigation by Revenue and by the looks of all of the posts on the issue there will be a lot of people in trouble.

pay now or pay later ? i know what i would choose

mikeyny

 

[Dowee]

You'll only pay CGT if it isn't your PPR or if you've not lived there for certain periods.

 

[ribena]

Okay, I hold my hands up.......I have to just say that my own father would never ever entertain any shady dealings and neither would my current boss but I did work for a guy who was 100% crooked but I don't think I should say anymore on that score. I personally would be very tempted if my Solicitor told me he could work it out so as I didn't have to pay stamp duty, hence saving me €5k - €10k. Just to also point out it's the Solcitor and not the Auctioneer who alters the Contracts (sticking up for the family honour!! )

 

[Molly]

The vendor is looking for a certain figure, the buyer pays that sum and the Solicitor just draws up the Contract for whatever the agreed figure is minus €8 or €10k for contents

the further €10k can be purchased outside of contracts, as part of a gentlemens agreement, is there anything wrong with that?

 

[ribena]

the further €10k can be purchased outside of contracts, as part of a gentlemens agreement, is there anything wrong with that?

I wouldn't see anything wrong with it but I'm getting out of this debate..........