House ‘raffles’ are an increasingly popular way to ‘sell’ a property and offer some people their only chance of homeownership. But are they all they’re cracked up to be? Moneywise finds out
It sounds like a no-brainer: you ask people to pay a few pounds to enter your prize draw and, a few months later, someone could be the proud owner of a home worth hundreds of thousands of pounds. And you will have offloaded your home without the need for an estate agent.
What is more, for the raffle winner, stamp duty is included in the prize and HMRC says that for capital gains tax (CGT) purposes, the value of the residential property would be its open market value on the date of acquisition.
This means that if the winner of the raffle already owns a house and sells the property immediately, it is likely that there would be no CGT to pay.
It’s an idea that has taken off in the UK over the past couple of years – but with varying degrees of success.
Some prize draws have not been as popular as expected, with winners being offered smaller cash prizes instead of the property.
One example that attracted media attention but didn’t receive enough cash is a £2.7 million prize draw for a castle close to the town of Castle Douglas in Scotland.
When the draw took place last month, Orchardton Castle had not hit its target, with £77,000 in the kitty once charitable donations and advertising had been paid for. This meant the winner received a cash prize of £65,000, with the second and third prize winners receiving £7,000 and £5,000 respectively.
Owner Susan DeVere is considering raffling the castle again in August, but says that this time she would do things very differently.
“I would get an outside company to issue raffle tickets and to take over the whole draw process. People also thought it was too good to be true, so you need a sponsor to guarantee the prize and show that it is not a hoax,” she says.
She adds: “It would be impossible for one person alone to do the marketing, promotion online and offline, dealing with emails and administration, legal work, etc. You should be prepared for it to be your job during the life of the competition.”
And while running a competition over several months, you may lose out on selling it through an agent.
Sue adds: “I constantly received enquires [from buyers] while the competition was on, but obviously it was not for sale during that time.”
Sue also found processing payments harder after PayPal and EventBrite decided to withdraw from working with this type of competition.
PayPal told Moneywise that prize draws “present an unusual challenge” and that it has decided not to allow its payments service to be used to buy tickets for entry to house prize draws in the UK “to protect consumers, PayPal and the people running prize draws”.
A spokesperson says: “They are difficult to carry out successfully and carry considerable risks, such as the possibility that the property is not accurately described, that the draw is not conducted fairly, or that entries are made from countries where such prize draws are unlawful.”
Eventbrite adds that its service “was not created with raffles in mind” and it “will not support raffles created on our platform in the future”.
Another prize draw for a £650,000 flat in Brixton, south London, has had its deadline extended by five months to 25 November as it failed to sell the 150,000 tickets needed to reach its target – and that’s despite the fact that the organiser, Raffle House (Raffle-house.com), says the winner could receive a rental income of £1,900 a month and the tickets are just £5 each.
Raffle House is one of a new breed of companies that has been set up expressly to market properties by prize draws. While the Brixton house is its first property, it plans to eventually have one property a month on its website.
Benno Spencer, its founder and chief executive, says that although the deadline for its Brixton flat has been pushed back, he is “confident” that he can secure the minimum number of tickets and have a winner by the November deadline. But a cash alternative will be offered this time round if the target isn’t met.
Raffle House is acting on behalf of the owner in a similar way to an agent, but it wouldn’t divulge how its fee structure works, other than to say that the cost involved on its platform is less than an agent’s fee and that it will pay the homeowner a fee if it fails to sell their property.
There is certainly an interest in companies that will run a prize draw on behalf of homeowners – and they’re not just in the UK.
Mr Spencer says: “We’ve had more than 40 individuals come to us with one or more properties. The majority of those are in the UK and some of them are absolutely fantastic pads. We’ve also had anything from a castle in Italy and a ranch in the US to an amazing place in Thailand.”
“If you win, it’s a big, life-changing moment”
If you are looking for a chance to win a home abroad, then Win Houses (Win-houses.com) currently has a prize draw for a four-bedroom luxury villa in Turkey, which featured in the Sunday Times’ list of top 100 European villas.
Located in a traditional hillside village with views to the Mediterranean, with the coastal town of Kalkan just 7km away, the prize includes the fully furnished villa, 1,450 sq m of land, legal fees of up to £2,500, four nights’ hotel accommodation in Turkey and economy flights for two for the winner to see the villa, plus £500 spending money. Tickets cost £10 and the draw is set to take place on 16 September.
This is the first property on the company’s books, but it aims eventually to run three to four prize draws a year and already has plans to promote an apartment in the South East of England.
Lucy Summers, a company director at Win Houses, says: “This is a way of letting people acquire property at fairly low odds – we only have 80,000 tickets for sale.
“If you win, this is a big, life-changing moment. Someone stands to gain something of considerable value. For what you spend in Costa Coffee or Pret a Manger today, you could be hundreds of thousands of pounds richer. What’s not to like?”
Stick within the gambling rules
If a free draw or prize competition hasn’t been set up correctly, you could be running an illegal lottery and breaking the law.
Cliff Young, the Gambling Commission’s lotteries expert, says that while raffles may seem a great way to get money for your house, you need to check that you don’t fall foul of the gambling rules.
Raffles, or lotteries as they are referred to in gambling law, are where people pay to enter, there is a prize and the result is purely based on chance. But the Gambling Commission says that most house raffles it is aware of operate as prize competitions, which are not considered as gambling under gambling laws.
Unlike a lottery, where the outcome depends on chance, the outcome of a prize competition must depend on the exercise of skill, knowledge or judgement by the participant. In the case of the Brixton raffle, entrants must answer a multiple choice question, while Turkish villa entrants have to work out a mathematics test to find out the cost of a pair of sunglasses.
Mr Young says: “We really don’t want to see members of the public unintentionally getting caught out by the law and potentially landing themselves in legal trouble by running an illegal lottery. We know many people running these kinds of schemes will want to be creative to give their prize competition or free draw some appeal, but you must make sure you are following the rules. You should seek expert legal advice before proceeding.”
No strings attached?
You could also be forgiven for thinking that gaining a house for free is a win-win situation, but it, too, has its drawbacks.
While you may win a house without shelling out any money, the owner won’t simply be handing over the keys and walking away. The prize organisers will usually pay for your legal costs, but you will still have to consider property maintenance, home insurance and council tax charges. Plus, you’ll be signing a legal contract and need to check there are no financial drawbacks.
Meanwhile, sellers need to bear in mind that HMRC may consider the proceeds of a house prize draw as income, resulting in an income tax and national insurance bill. If the home is not their main residence, sellers may face a CGT bill. However, HMRC says that the seller wouldn’t pay income tax and national insurance as well as CGT. Depending on how the raffle is arranged, it may amount to a trading transaction rather than a capital gain, so that income tax and national insurance contributions would be due instead of CGT.
Natalie Bradley, head conveyancer at solicitors Stephensons, says: “I would advise any successful party not to simply accept the property without the usual title investigations and searches being carried out. While a free house may seem ideal, they need to ensure there are no strings attached.
“The winner would have to consider why the owner has chosen to dispose of their property in this way. Have they had problems selling their house? Are there issues with the neighbours? Is the owner in a precarious financial position?
“If the owner is seeking a swift sale to avoid any financial liabilities, then the winner would have to ensure they are fully protected. The transfer of the property would be for a nil consideration (or the value of the particular entry fee paid by the successful party) and would be classed as ‘transaction at an undervalue’.
“If the previous owner was then made bankrupt, a trustee would be appointed or selected to oversee the case. This trustee can cancel the transaction (there are various conditions and timescales involved in this). All the trustee has to prove is that it was a transaction at an undervalue.
“The whole area seems a little bit of a minefield. My advice would be simply don’t do it.”