Can vendor pay the stamp duty for the Buyer?

[Guest107]

thats between the purchaser (his valuer who backs him on the 360k figure ) and his bank . The bank is effectively providing a 103% mortgage in this case and maybe more if they are reducing payments for the first few months.

The vendor is in the clear .
The revenue has been paid and cares not.

 

[mf1]

Would it not be possible to draft a separate (conditional) contract for the gifting of €10,000?


No - the whole point is that it has to be entirely above board - the bank have to be aware that the actual purchase price is E350 - and there is an implied condition that the price in the contract is the price for the property.

"thats between the purchaser (his valuer who backs him on the 360k figure ) and his bank . The bank is effectively providing a 103% mortgage in this case "

Thats my point - a bank may be willing to lend 100% of a real actual value but they are unlikely to be willing to lend 103% of a value - and since the whole thing has got to be transparent to work ( i.e. so that vendor does not run off with the extra 10K), this is where the proposal falls down, imo.

mf

 

[CCOVICH]

Would it not be possible to draft a separate (conditional) contract for the gifting of €10,000?


No - the whole point is that it has to be entirely above board - the bank have to be aware that the actual purchase price is E350 - and there is an implied condition that the price in the contract is the price for the property.

Just to clarify:

(1) Party A agrees to sell house to Party B for €360,000. There is contract of sale drawn up to reflect this transaction.

(2) Separately, Party A agrees to pay Party B €10,000, conditional in the successful exchange of contracts at (1) above. (a signing bonus if you will???)

is not a runner-because (1) and (2) are deemed to be part of the same transaction?

 

[tiger]

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.

Yes, effectively the issue as I see it is not that this is a way of avoiding stamp duty, but it's a round about way of getting mortgage approval for 105%(*) of the value of the property. It's the bank that needs to turn a blind eye here.

(*) approx figure here, stamp duty is not 5%. Also most buyers would be getting 90 or 92% mortgage. Point is it's still "X" above what they're officially supposed to give.

 

[mf1]

Hi CCOVICH,

Solicitor draws up Contract A. Bank are told that property is being sold for E360K. Solicitor draws up Contract B - funnily enough, for no apparent reason, Vendor wishes to make a gift of E10K to someone he has never met and it is conditional on that person buying his house for E360K. Solicitor is involved. Bank need to be told the truth, the whole truth and nothing but the truth, and if they are happy to go with it, problem solved. And if they're not, sin e.

mf

 

[CCOVICH]

Ok, thanks mf1, as I suspected all along it is the 'artificial' nature of the transaction that scuppers the scheme.

 

[Confusion]

Even aside from mf1 valid point. The solicitors and banks wouldnt touch this with a barge pole.

What purchaser in their right mind is going to finance their 1st home by starting off with negative equity?
They'd have a mortgage of 360K and house worth 350K. Therefore they'd also have higher mortgage repayments. The 10K @ 30 years @3.75 would cost them circa 5500 over the life time of the mortgage. So there is alos the point of why on earth would the purchaser agree to over finance their home? Stupid

 

[ubiquitous]

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....

I can't think of any situation where such a claim for tax relief would stand up for an instant if examined by Revenue. The transaction has nothing to do with the generation of ongoing income (ie rents) from the property.

...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 .

Yes, this is probably true.

 

[Legin]

Well some very interesting points raised here. I'm not even going to try to respond to each point raised (apologies). But here is a general reply.

1) This is not a scheme for tax evasion - as some have clearly pointed out the stamp duty is paid in full
2) Yes. The stamp duty will be calculated on the higher mortgage amount (a few hundred - not a concern)
3) I originally had in mind that once the mtg check is drawn down. A cheque by me made payable to the buyer is done immediately (or just prior) - whichever must be done first.
4) Arguments of the home being over-valued and that the bank may make a loss in the event of foreclosure is imo nonsense. The fundamental reason that 2nd hand properties now cost less than new ones is imo down to stamp-duty, and the inability of FTBs to come up with the necessary money "up-front", thus keeping prices lower than new homes. A new home bought for 400K and sold within a year could very likely make a loss as it would then be 2nd hand and subject to the economical factors described earlier. As stated in my original post, this is all subject to a valuer's report.
5) Mortgage repayments costing more - I don't think there is a FTB out there that wouldn't jump at the opportunity of a bank lending stamp duty on top of the purchase price (e.g. 105%), instead of having to pay far more for a home of lesser quality/size and further out of town etc. (and this is happening). As stated previously,the bank has already approved them for a mortgage of 400K which means as far as the bank is concerned, the repayments on 360K must be affordable to these buyers. Most resort to borrowing the money from credit unions etc at much higher interest rates and far higher monthly repayments (placing higher financial burdens on them)
6) Many banks are quite willing to accept a cash gift from a parent etc. to the buyer to make up the balance required. Why is this only acceptable from certain people? I could be selling the house to my nephew / grandson / brother in law etc etc. - What is stopping me giving the money to their parents and them gifting the money to the child buying the house? (This last point is merely to illustrate that there appear to be no hard and fast rules what-so-ever). My parents gave me 10K when I purchased the house, and the bank had no problem with this - they did not enquire how my parents came by the money - indeed for all they knew the vendor could have given the money to them or intended to on the day and as far as I can see this would have been perfectly legitimate and honest)
7) This is currently my PPR and not subject to CGT.
8) The Gift is below the tax threshold for Gifts - as pointed out by other posters.
9) These are 2 separate transactions, however they occur at the same time, perhaps in the same office (giving both parties the ability to cancel their respective cheque if there is any sign of dishonesty - as far as I can see anyway)

any other thoughts? Can you think of any other complications?

 

[Confusion]

Hi Legin

Just in repsonse to you
point 4 & 5) The bank would be placing themselves at greater risk of making a loss in the event of foreclosure. (there is simply no denying that fact) The 105% mortgage IS over finance and is negative equity.
That 5% is important.
Often banks dont have the time nor the inclination to get involved in lenght sales. Quick sale at lower price so a 105% puts bank at greater risk than an individual (generally)

Also a purchaser would have to hope current market trends continue and that they could sell for above 360K, starting 10K back in the valuer's opinion.
While it might look good for the FTB upfront in the long term the seller is incouraging them into greater risk with 105% and they will pay more in long run due to the extra 5%. Caveat emptor on this one!!!

 

[Legin]

Thanks for that input Confusion. Here's a reply from JoeKing to the same query that I posted on another site, but might prove interesting to readers here:

The Revenue will object as the price is in reality the lower figure. The Revenue will be concerned that in the event of the purchaser being an investor the 10K will not be subject to CGT, on resale, which it would be, if the true price had been stated. The transaction proposed is an example of artificial tax avoidance. You may in fact be paying more in stamp duty but it does not change the CGT problem. Equally, your purchasers lender will net the two figures to value the house. Why would anyone sell their house at an undervalue? They will be concerned that they are lending too high a percentage of the purchase price and thus exposed if the borrower defaults on the repayments. Also the solicitors in a conveyance have to certify that the transaction is NOT part of a series of transactions.

 

[lff12]

Seeing this advertised in the Evening Standard in London with regard to new developments. Technically it is legal. Good idea though!

 

[CCOVICH]

English law isn't the same as Irish law, but anyway, it has pretty much been ascertained there is nothing illegal about this scheme, it is the bank and the solicitor who will almost certainly object.

 

[Howitzer]

Whilst I think there's nothing wrong with the scheme per se, I'm still not clear as to why the OP doesn't just drop the price rather than trying to engage in a very convoluted process.

 

[Legin]

Firstly, I wish to let everyone know that we have decided not to sell after all. However, I think this is a useful discussion and would appreciate if everyone continues to submit their comments.

Howitzer: I'd have liked to sell for 350K. The only viewers I have had to date have been ftbs. In order to sell to any of them I would have to reduce the price to €317,500 as none of the FTBs that have viewed the property were in a position to afford stamp duty. This is not an option for me and hence I am trying to come up with a 'creative' solution to this while not doing anything illegal.

Here is a rough idea of what I had originally planned:

1. Meet up on the day with the buyer and their solicitor, and my own solicitor.
2. Make a cheque payable to the buyer for 10,000K (approx)
3. They would then furnish that to their solicitor to pay for the stamp duty and allow the sale to go through.
4. Carry out the closing as per normal for the amount of 360K (cheque from bank)


In the event that their bank required information where the stamp-duty money was coming from, I would either have told them to be up-front or would have suggested the next solution.

Make a cheque payable to the parents for 10K (post-dated for the day of closing). The buyers would inform their bank that the 10K stamp duty would be provided by their parents. They could then have endorsed the cheque over to the children and the transaction would then proceed as specified above (excluding step 2). I might also have considered this option if the solicitor had any problems with having to disclose a "series of transactions" - as the two transactions would have been between different parties (not sure if this would work though).

Please bear in mind that this was only an idea, and I probably would not have gone with it anyway. But am as usual interested in any comments.

 

[FillSpectre]

I don't see why it is being made so complicated.

Do you not just say I will pay the stamp duty on the sale and when the sale for €360k is made you then pay the stamp duty with your solicitor no aspect of gift.

What you are selling is your house with stamp duty paid.

Am I missing something?

 

[CCOVICH]

Am I missing something?

Yes, the bank will not give a €360k mortgage if the value of the house is €350k. If you have a look at the posts made by mf1 you will see where this plan falls down.

 

[FillSpectre]

Yes, the bank will not give a €360k mortgage if the value of the house is €350k. If you have a look at the posts made by mf1 you will see where this plan falls down.

If that is the only issue it is not an issue. You could easily get the pricing to vary by 10k at this price. A valuation is not set in stone.

 

[dam099]

If that is the only issue it is not an issue. You could easily get the pricing to vary by 10k at this price. A valuation is not set in stone.

I'd imagine the bank don't just go off a valuation alone, somewhere in the process the contract price is likely confirmed to them (by the solicitor?). The normal lending criteria are x% of the valuation or purchase price whichever is the lower.

I know when I applied for my mortgage I included the purchase price as per the contract in my application, I'm not sure if they got independent confirmation of this but the solicitor did have to complete a legal pack which I'd guess probably included the purchase price or maybe had to have a copy of the contract attached.

 

[CCOVICH]

If that is the only issue it is not an issue. You could easily get the pricing to vary by 10k at this price. A valuation is not set in stone.

Well it appears to be based on the view of a solicitor (mf1). I was making the same point as you previously, but it appears to be a non-runner.