Solicitor advice re avoidance/deferral of stamp duty

[practitioner]

We have signed contracts re house sale.Purchaser has paid 10 % deposit.They then had a change of heart and were considering pulling out.We advised through our solicitor that they would forgo deposit and also we would enforce sale of house through specific performance.The purchaser has now agreed to go through wih sale on condition that the house is 'subcontracted'.We plan to meet our solicitor re this proposal.Has anyone encountered this befoe and is there any liability to us re stamp if purchser fails to pay?Do we still have responsibility re house insurance etc?Is there a recommended time limit?Our solicitor has said we are under no obligation to do this and we would have no liability after discussing informally.The purchaser has suggested this as they may not live in house and just sell it on when a suitable buyer is found or they may pay the stamp at such time if they decided to move in.

 

[j26]

Never heard of it. What does it entail?

 

[mercman]

You are selling a House not a pile of technicalities. If they wanted to do this, they should have told you at the beginning.

 

[MOB]

"If they wanted to do this, they should have told you at the beginning."

It seems clear that the buyers did not intend this at the beginning. They are willing to go ahead and pay for the house(as they contracted to do) and in return they are asking that the seller facilitate a subsale. Alternative is litigation. Simple choice.

 

[dazza21ie]

Sounds like a sub-sale which is quite common. Why would you think there would be a stamp duty liability for you as the vendor. Stamp Duty would be of no concern to you.

 

[Brendan Burgess]

Hi practitioner

It seems like a reasonable request although I don't understand the technicalities.

While you are under no obligation to do this, the right thing to do is to facilitate the buyer as much as possible. Your agreement with them would specify that they are obliged to pick up all costs you may incur, although I suspect that once you have sold the property, that it is their responsibility.

MOB - how does this work in practice? If I see a property which I hope to buy and sell on at a profit, how do I achieve it without incurring stamp duty.

A friend of mine told me that he bought a house at auction, and that he had sold on the back garden of the house as a site, before he had left the auction room. I found it hard to believe, but if I buy a property with a site for say €500k and I want to sell on a site for €100k, can I do that at the same time as the purchase?

Brendan

 

[MOB]

To put it at its simplest, a subsale involves a ded of transfer with three parties. The normal deed of transfer says (paraphrased and in semi-layman language):

"A has agreed to sell property to B. In consideration of €xxx now paid by B to A, A hereby transfers the property to B" (though of course we lawyers take two pages to say this)

A subsale instead might state

"A has agreed to sell property to B. B has in turn agreed to sell [all or part of the] property to C. A has agreed to join in this deed at B's request. In consideration of €xx now paid by C to B AND in consideration of €yy paid by B to A, B hereby transfers and A at B's request likewise transfers [all or part of the] property to C"

In this transfer deed, property passes from A to C. There is only one charge to stamp duty. B does not get it transferred into his name, so he does not incur stamp duty.

The easiest way to organise a subsale is in fact to complete both sales simultaneously and have the money change hands all on thesame day. Your friend who bought a house and sold on a piece of the back garden could certainly have done it by way of subsale - and this would have been the logical way to do it.

There are various, and rather more complex, issues which arise where the property is being paid for now (by the first buyer) but the transfer (to the ultimate purchaser) is not yet taking place.

 

[Brendan Burgess]

There are various, and rather more complex, issues which arise where the property is being paid for now (by the first buyer) but the transfer (to the ultimate purchaser) is not yet taking place.

MOB thanks for an informative reply as always.

How does A get the money if the identify of C is not yet known?

Is A's agreement needed to a subsale? My friend presumably signed the purchase contract immediately after the auction. The subsale paperwork would have taken some time to put together. Could A have refused?

Brendan

 

[runner]

Thats very informative indeed!
If one is selling a house and site, the sale contract can be constructed legally so that the middleman 'B' pays stamp duty on the house only, and passes the site SD on to 'C'. Didnt know that.

 

[practitioner]

We have taken further legal advice and it has been stated that unless the subsale goes through before or on the day of the initial planned closing date between parties A and B, then party A may be liable by Revenue in the future for stamp duty evasion.We would also be signing a legal document saying that the subsale went thorugh on the planned closing date as had been aranged as opposed to when it actually took place in the future presumably when party B had found the buyer i.e. party C.Furthermore, the advice also suggested that agreeing to this subsale contract may undermine our existing contract, our entitlement to forfeited deposit, any planned future suit for damages and any planned future suit for specific performance re contract enforcement because it has put another condition (that is subsale) onto existing contract.

 

[MOB]

"How does A get the money if the identify of C is not yet known?"

B has to pay it over, on the basis that A will execute the deed of transfer in due course, when the identity of C is ascertained. This is where numerous practical problems and legal complexities can arise.

"Is A's agreement needed to a subsale?"
If it is simultaneous to the originally planned completion, then possibly not. Opinions vary - but I have never seen it disputed. Certainly, however, there is no obligation on A to agree to a 'money now and transfer deed later' arrangement.

 

[MOB]

"We have taken further legal advice and it has been stated that unless the subsale goes through before or on the day of the initial planned closing date between parties A and B, then party A may be liable by Revenue in the future for stamp duty evasion."

It is perfectly possible to structure the transaction in a legitimate way under current law.



"We would also be signing a legal document saying that the subsale went thorugh on the planned closing date as had been aranged as opposed to when it actually took place in the future presumably when party B had found the buyer i.e. party C."

Such a document would indeed be fraudulent, and you should not sign (nor should you be asked to sign) it.


"Furthermore, the advice also suggested that agreeing to this subsale contract may undermine our existing contract, our entitlement to forfeited deposit, any planned future suit for damages and any planned future suit for specific performance re contract enforcement because it has put another condition (that is subsale) onto existing contract. "

To be frank, this sounds like the advice of a lawyer (btw please don't name them) who is happy to point out problems and perhaps not so quick to suggest solutions. None of these issues is incapable of being dealt with in a clear and contractually binding way by agreement between the parties.

At the end of the day, you are not contractually obliged to facilitate a 'pay now, transfer deed later' type of subsale. However, if this is the only way that you are actually going to get to 'pay now' and if it is structured so as to properly avoid (and not evade) stamp duty, then you might consider it worth your while. It depends, I suppose, to some extent on how much stamp duty we are talking about, and whether it is a large enough sum that the buyer might try to dig in their heels about it.

 

[practitioner]

Thank you MOB for your replies.May I be so bold as to ask for pointers regarding proper structuring of contracts so as to avoid/defer stamp as opposed to evading.Also is it all legitamate to avoid stamp duty provided that in the future it will be paid and how long will the future purchaser have to register property and to pay same?