We regularly carry out highly specialised professional chattels valuations for purchasers and conveyancing. However, please be aware of possible questions from HMRC by reading the following information and advice and HMRC definitions. Speak to Jeffrey Avery for expert advice on this tricky topic.
Problems Inherent in Stamp Duty Land Tax
The inequities in ‘stamp duty’ policy inevitably mean conveyancer’s regularly face having to give unpopular advice. They have to strike a balance between buyers seeking to reduce liability, and sellers hoping to increase the sale price. The most common approach is by paying extra for ‘fixtures and fittings’.
The Current ‘Slab Tax’ Regime
A new tax regime creating ‘Stamp Duty Land Tax’ (SDLT) replaced the old ‘stamp duty’ regime in 2003 . It still however commonly goes under the name ‘stamp duty’. From a buyer’s perspective the changes may be pretty academic. That’s because the bottom line remains their property purchase will be subject to a charge for tax.
- The charges are based on price bands, and without any graduation in the tax, i.e a ‘slab tax’.
- Property under £125,000 is not subject to tax. But at £125,001 the charge is 1% charge on the total i.e £1,250.
- The next band is at £250,000. A property at £250,000 incurs 1% tax. But at £250,001 the tax is 3% i.e. £7,500.
The regime is a tax on the price the buyer pays for the transaction. This is not just the price on the documents. Because it includes anything else the buyer pays for in the transaction, even if it is in a separate document. Cash payments to sellers, or payments by buyers for sellers’ benefit are also part of the calculation.
HM Revenue and Customs can raise an enquiry on any transaction within 9 months. This can be random or selective. However, one would cynically be more inclined to expect this to be for a purchase at precisely £250,000, rather than a sale at just over this amount.
We regularly carry out specialised professional chattels valuations for purchasers and conveyancer’s, to avoid possible questions from HMRC.
The Value of ‘Chattels’
If a buyer agrees to buy a property for a price which includes an amount properly attributable to ‘chattels’, then the amount so attributable is not chargeable to tax.
Buyers usually consider this apportionment when their purchase price is on the limits of one of the stamp duty thresholds, but need to consider this carefully as an investigation could prove costly.
‘Just and Reasonable’ Professional Chattels Valuations
Any price apportionment is perfectly permissible, but must be ‘just and reasonable’. Chattels must be ‘movable’. They may not be fixed to the property, and forming part of it. However, the sales documents do not need use the exact value of the items in reaching the apportionment.
In establishing what is ‘just and reasonable’ it may be appropriate for a professional chattels valuation to take into account value to the buyer. As for instance where a buyer may reasonably pay in excess of market value for carpets, as this may still be better value for the buyer than fitting new ones.
More Advice on Professional Chattels Valuations
The HMRC guidance on what constitutes a chattel is available here. However, a chattels valuation would normally include:
- Carpets (fitted or otherwise)
- Curtains and blinds
- Freestanding furniture
- Kitchen white goods
- Light shades and fittings (unless recessed)
- Electric and gas fires- where they can be removed by disconnection from the power supply without causing damage)
- Plants etc growing in pots
On the other hand, things that would not normally be regarded as chattels include:
- Fitted kitchen units, cupboards and sinks
- Gas and wall mounted ovens
- Fitted bathroom sanitary ware
- Central heating system
- Intruder alarm/door bell
- Garden shrubs etc growing in the soil
The Risk of an HM Revenue and Customs Enquiry
It may seem attractive to endeavour to reduce the SDLT liability on a property purchase by allocating a proportion of the purchase price to chattels. However, if there is an enquiry, HMRC may seek to adjust this apportionment. If they are successful even by the smallest amount, this can mean that the buyer becomes liable for the further tax. That is if tax is paid on £250,000 and HMRC correctly challenges just £1 of any chattels price, then the full further tax of £5,000 would then be payable.