SDLT and concessionary purchase

[ITR1]

Does anyone have any experience of SDLT and concessionary purchases? Specifically, can the parties agree any contractual consideration and just pay SDLT on the transaction value?

Scenario is:

-purchaser buying property from relative
- property market value is £950k. It is not mortgaged
- purchaser will need mortgage on new property for less than 1/3 of the market value

Could the parties agree that the purchase prices will be, say £500k, to give a good LTV and then separately post-transaction purchaser gifts relative a cash lump sum.

Alternative is not to gift anything, pay a greater purchase price for the property but then SDLT will be higher.

Asking for a friend. Thanks in advance.

[Mandat]

ITR1 said:

Does anyone have any experience of SDLT and concessionary purchases? Specifically, can the parties agree any contractual consideration and just pay SDLT on the transaction value?

Scenario is:

-purchaser buying property from relative
- property market value is £950k. It is not mortgaged
- purchaser will need mortgage on new property for less than 1/3 of the market value

Could the parties agree that the purchase prices will be, say £500k, to give a good LTV and then separately post-transaction purchaser gifts relative a cash lump sum.

Alternative is not to gift anything, pay a greater purchase price for the property but then SDLT will be higher.

Asking for a friend. Thanks in advance.

I believe that this is a well known method of fraud, which HMRC are very much aware of.

SDLT would be payable on the market price, irrespective of what the private agreed price was claimed.

[LeoSayer]

Agreeing a lower price results in a worse LTV, not a better one.

In any case, it would likely be impossible to implement this scenario without completing both mortgage fraud and tax evasion.

[LooneyTunes]

To put into context how closely HMRC can look, the lawyer I used when I bought my current place (a partner in a large regional firm) was insistent that there wasn’t any to avoid the early completion fee that we had agree with our vendor, in what was very clearly a property price + fee arrangement, being paid without incurring SDLT.

[ITR1]

Thanks all. After more digging I think it would be classed as tax avoidance - the gifted payment afterwards is the problem as that plus the stated purchase price represents the true consideration for the purchase.

FWIW in case of interest to anyone else SDLT is payable on the completion amount not the market value in these circumstances:
https://www.samconveyancing.co.uk/news/conveyancin...

Edited to add: Concessionary mortgages are a thing so not sure where mortgage fraud comes into it. I can totally see the scope for issues with HMRC though!

Edited by ITR1 on Monday 10th February 13:00

[zbc]

ITR1 said:

Edited to add: Concessionary mortgages are a thing so not sure where mortgage fraud comes into it. I can totally see the scope for issues with HMRC though!

Edited by ITR1 on Monday 10th February 13:00

Happy to be corrected but my understanding of a concessionary mortgage is that the remainder of the money needs to be a clear gift and often providers would require you to sign a statement to that effect. If you went into the deal with the intention to repay the concessionary part that would be fraud. Probably the mortgage company wouldn't lose out but you would have knowingly misrepresented the situation and in addition if you decided later to renege on the agreement with the seller to pay the extra then there is a whole host of legal mess that could be very expensive for them.

[ITR1]

zbc said:

Happy to be corrected but my understanding of a concessionary mortgage is that the remainder of the money needs to be a clear gift and often providers would require you to sign a statement to that effect. If you went into the deal with the intention to repay the concessionary part that would be fraud. Probably the mortgage company wouldn't lose out but you would have knowingly misrepresented the situation and in addition if you decided later to renege on the agreement with the seller to pay the extra then there is a whole host of legal mess that could be very expensive for them.

Makes complete sense, thanks. There will be a substantial gift in this scenario btw, it was just whether nor not to chip £100k off the purchase price. The intention wasn't to repay all of the concessionary part - far from it.
It is clearly an all round bad idea though to save a bit of tax, so the treasury will get its money!

[Puzzles]

Will you be gifting the money if you don’t purchase the house?

[ITR1]

They wouldn't be no, hence where part of the problem arises!
Doesn't seem worth fiddling around with the value of the concession to save a a few thousand on stamp duty.