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Stamp Duty Land Tax and Your Liability

Stamp duty land tax (SDLT) thresholds can dictate the market price of properties for both buyers and sellers and particularly in respect of those properties which may just creep over one stamp duty threshold into another. A seller may traditionally have thought marketing a property at a price with a lower SDLT liability for a buyer opens the market up for more buyers looking to minimise the costs of a purchase.

There probably isn’t a single conveyancer who hasn’t had a new enquiry from a buyer or seller of a property wanting to apportion the price between property and fittings and contents (‘chattels’) remaining in the house on completion and in doing so bringing a buyer’s liability down to a lower SDLT threshold.

The recent changes to stamp duty in December 2014 does mean that SDLT is now calculated in a different way which is less likely to lead sellers and buyers wanting to apportion property price in the way it has been in the past. However, proposed apportionments by buyers to offset stamp duty liability may not necessarily end with these changes.

As a general rule SDLT is chargeable on consideration actually paid, whether stated on the purchase document or otherwise for land and things attached to the land on completion of the land transaction. If the extras are things like burglar alarms, fitted units or upgrades of spec and it is part of the overall ‘deal’ then you pay SDLT on the lot, whether they are stated in the transfer or the contract or are side agreements or not even documented.

A recent court case Orsman v HMRC is illustrative of HM Revenue & Customs’ attitude to ‘chattels’, though given the reform of the tax there isn’t the resulting cliff-edge increase as in that case. In this particular case the price was to include a number of items that were being left by the seller.   When the price was apportioned in the contract, it showed the house purchase price as £250,000 with a further £8,000 for chattels. By apportioning the sale price this way, Orsman was liable to pay 1% SDLT as the house purchase fell into the SDLT tax band that existed then (but not now) for properties between £125,000 and £250,000 rather than 3% for properties over £250,000.  This meant that she paid £2,500 in SDLT rather than over £7,740.

The SDLT return was filed. HMRC then wrote to Orsman to query the amount apportioned to chattels.  An amended fixtures and fittings list was drawn up and sent to HMRC.  This included items easily identifiable as fittings such as a fridge and washing machine, however the list also included less obvious fittings such as semi-fitted wardrobes, an electric oven, a motor unit which worked the ‘up and over’ garage door and garage worktops. The chattels included £800 for “built-in fitted units with worktop” in the garage. The units were not fixed to the walls of the garage, but were attached to the worktop, which was itself fixed on battens mounted on the wall.

HMRC successfully argued that the motor unit and worktops were a fixture not a fitting and valued these items at £800.  The consideration for the land transaction was therefore £250,800, not £250,000 and the higher SDLT rate of 3% was payable on the whole.  In this case, because the buyer’s initial value for the land was right on the limit of the 1% rate, HMRC knew that if they could identify just £1 of incorrectly identified chattels, they would pocket an additional £5,000 in SDLT.

RH property copyHMRC then assessed the tax liablility to be £7,524 and Orsman was ordered to pay the additional £5,024 SDLT.

Tax returns may always be subject to review and question by HMRC once filed.

Due to the new staggered way of now calculating SDLT liability such apportionments of property prices between property and chattels should become a thing of the past.

If you are looking to purchase a new property and are unsure of your SDLT liability, click here to access the HMRC SDLT calculator and identify your liability.

For further legal advice regarding stamp duty land tax, please contact Ridley & Hall on 01484 538421 and ask to speak to a member of the Residential Property team.



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