Michael Sheridan: House-buying has just become even harder

The long suffering solicitors and even more suffering clients are now accustomed to enabling same day settlements to take place. Picture: PA

Once upon a time, solicitors protected clients against the hazards of buying and selling houses by arranging bridging loans. The bank provided a short-term, unsecured loan to enable the purchase transaction to be completed independently of the sale transaction. It also enabled the move in to be completed without the complication of having to move out on the same day. That facility depended upon trust in the solicitors’ profession and a capable banking system, both quantities which have diminished, and the bridging loan has now disappeared.

One alternative is to complete your sale transaction a day or two before the purchase, put your furniture into storage and either board with relatives or in a hotel for the intervening period. The total cost would not be very different to the costs of a bridging loan, with little change from, say, £1000.

Same day settlement avoids this but has its own drawbacks. In the one day you have to both move out of your existing home and into your new one, receive the sale price for your existing home, pay for your new home, receive your new mortgage funds and paying off your outgoing mortgage. And, of course, you’ll have to hope that the seller of your new home will have vacated the property by the time your removal van arrives there.

The problems are compounded by the fact that, while money may arrive at a bank in good time, it cannot be used until that receipt has been ascertained. Lurking behind this is the issue as to how final is the bank’s electronic transfer of funds and what are the circumstances in which such a transfer might later be rescinded. The use of settlement cheques addresses many of the money transfer problems but the modern addiction to the internet threatens the survival of the cheque system.

Nevertheless, at whatever cost of time, energy and blood pressure, the long suffering solicitors and even more suffering clients are now accustomed to enabling same day settlements to take place.

Now, by a stroke of legislative insanity, our government has added another bar to the gate which has to be cleared. The Land and Building transaction Tax (Stamp Duty as was) includes an interesting provision entitled Additional Dwelling Supplement (ADS). This provides that where a person sells a dwelling house while he continues to own another main residence he has to pay and additional tax of 3 per cent of the price ie £6,000.00 on a £200,000 property.

This means that, having set up a same day settlement with all sums in place as per budget, and if there is any delay in the completion of the sale transaction then, in order to complete the purchase transaction, the client has to pay an additional 3% of the house price to Revenue Scotland.

Anyone who took my advice and settled their purchase transaction two days in advance of the sale would be similarly burdened. The tax penalty is recoverable, on certain conditions including the subsequent sale of the former property within a time limit, but has to be paid up front in the first instance and there is no time table as to when it will be repaid.

Any persons affected are recommended to send full details to their MSP.

• Michael Sheridan is Secretary of the Scottish Law Agents Society