A consumer group which has already expressed alarm at some aspects of the so-called ‘Modern Method of Auction’ says it has checked with HMRC about stamp duty liability falling on individuals who buy a home this way.
The HomeOwners’ Alliance has already gone on record as describing the world of online auctions as “murky” and saying how the reservation fee - which it suggests is a little-known add-on cost for buyers going down this route, often around £5,000 plus VAT - “goes straight to the auctioneers and estate agent.”
Now the HOA has returned to the issue with its latest newsletter, which comes out later this week but which has been seen by Estate Agent Today.
In it the alliance warns that paying the reservation fee “will actually increase the amount of stamp duty a buyer owes.”
It says it has consulted with HMRC which states that stamp duty is payable on “the chargeable consideration (monies or monies worth) for a land transaction … what has been given (either directly or indirectly) in order to acquire the subject.”
The HOA says this includes fees which have to be paid in order to secure the property.
“This means that whatever the buyer pays, it will form part of the purchase price for the property and it will be included in his liability for stamp duty” according to the HOA which then adds: “Yes that’s right, not only does the buyer have to stump up a reservation fee, it will all be added on to the price they have paid to acquire the property in HMRC’s eyes and will be add to their stamp duty bill.”
The alliance says that as many properties sold via online auction are usually lower in price this may not add anything to the buyer’s costs but if the property price and reservation fee combined go above the minimum stamp duty threshold “it is another chip away at your home buying budget.”
It then gives the example that if a buyer is bidding on a £225,000 property they may have a reservation fee of 2.5 per cent plus VAT, coming to £6,750.
“The total price you pay for the property is £231,750, increasing your stamp duty bill from £2,000 to £2,135” says the HOA.
When the HOA made its original comments about the Modern Method of Auction - which you can see here - it prompted a sharp response from one online auction operator, IAM Sold, which you can see here.