I’m buying a house and its seller wants to buy mine: Can I ‘gift’ it to them and avoid stamp duty?

I’m looking to downsize from my rural detached house, and find something smaller in the nearby town that will suit me as I get older. 

Last week I stumbled across the perfect house. The sellers were a young family in a terrace off the high street who needed something bigger. 

The estate agent suggested showing them my detached house, and, as luck would have it, they wanted it.

They offered the asking price and I returned the favour. My house is worth £500,000, which is £50,000 less than the one I’m buying. While mine is bigger, it needs work and doesn’t have the best transport or amenities. 

I have also kept hold of a small flat I own in London. My solicitor says I therefore need to pay the stamp duty second home surcharge which will amount to £45,000. 

In understand stamp duty isn’t charged on gifted property. Is it possible for us to do a swap where I essentially pay the seller the difference to reduce the stamp duty? 

So, for example, they would buy my house for £0 and pay no stamp duty, and I would buy their property for £50,000 and pay £2,500 rather than the full amount?

Ed Magnus of This is Money replies: This is an interesting question and well worth asking, given how costly stamp duty is.

You’ve heard that gifting a property, rather than selling it, can exempt the buyer from stamp duty – which is correct. 

But your situation is more than a straightforward giveaway. So could this work?

For expert advice we spoke to Arjun Kumar, founder of the online accountancy service Taxd, Andy Noton, a partner at accounting firm Lubbock Fine and Mark Barrett, tax specialist at Property Tax Advice ltd.

Could the house swap lower their stamp duty bill? 

Arjun Kumar replies: Although there may not be stamp duty if a property is gifted in full, trying to mark these as two separate gifts would likely be seen as linked transactions and brought under His Majesty’s Revenue and Customs’ anti-avoidance rules.

Mark Barrett adds: The suggestion of the gifting of property in both directions to avoid SDLT cannot work. There are specific rules in place just for this scenario.

Ed Magnus adds: The loophole you think you have identified unfortunately doesn’t apply to you. 

You don’t say whether either property has a mortgage, but if so this would lead to further complications. 

A gifted home would become liable for stamp duty if the outstanding mortgage was £40,000 or more. The stamp duty is then payable on the value of the mortgage, not the property value.

And in such a case, that mortgage would need to be either taken on by the person receiving the gift or paid off. 

To be taken on, the lender would also need to agree to the transfer. It would need to check that the person being gifted the property is eligible for the mortgage.

Will the seller pay the second home stamp duty surcharge? 

Ed Magnus replies: The other complicated bit for you is whether you are liable for the second home stamp duty surcharge.

In October the chancellor Rachel Reeves increased the stamp duty surcharge on second home purchases from 3 per cent to 5 per cent on top of existing rates.

This means that someone looking to buy a second home is having to shell out even more upfront tax in order to do so.

Under normal circumstances someone moving from one home to another won’t be liable for the stamp duty surcharge even if they have a second property such as a holiday home or buy-to-let. 

The potential issue for you is that you kept hold of your very first flat which we assume was purchased as your principal residence at that point in time.

Andy Noton replies: The key issue in this case is whether the house being sold by the reader is their ‘main residence’ or not. 

Ultimately, the additional stamp duty surcharge doesn’t apply when someone is buying a new home to replace their main residence, regardless of whether they own a second home. 

This distinction is crucial, as it would reduce the tax bill from £45,000 to £17,500.

The difficulty is that there’s no strict legal definition of what counts as a ‘main residence’, but HMRC offers guidance. 

The main factor is usually where the person spends most of their time, but other factors, such as where they are registered with a GP, are also relevant for HMRC when making a decision.

Therefore, with the help of their lawyer, the reader will need to determine which of their properties qualifies as their main residence. 

This will have to be declared in their stamp duty return and will ultimately determine the stamp duty tax to be paid.

However, if HMRC has reasons to believe that the reader has replaced their second home rather than their main residence, it may launch an investigation, and the reader may become liable for penalties and the stamp duty surcharge. 

That is why it’s so important that the reader is advised by a competent real estate lawyer.

Mark Barrett adds: Your solicitor may not be correct in saying that the second home charge applies. 

As the reader is selling their home to purchase the replacement, then the higher rate will not apply if the reader is selling their existing home on the same day that they buy the new home, which is what sounds to be the situation here.

Providing they nominated the house they’re now selling as their home, then the relief applies. 

If the nomination didn’t happen, but they’ve lived in the property they’re selling and can demonstrate that, then this will still be okay.

The test is ‘intent of permanence’ and to prove this you need to show you’re are voting in that area, have tax returns sent there, and provide any other evidence that you live and work there.

As always with tax, the smallest detail is important, so the reader is advised to seek professional advice.

I’m sure the solicitor will want the tax accountant to put in writing the taxation implications, as the solicitor is not a tax accountant and not insured to give tax advice – despite being the firm responsible for the stamp duty filing.