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
Fixtures and fittings refer to items that are attached or fixed to a property and are typically included in the sale of a house. These may include built-in furniture, light fixtures, plumbing fixtures, appliances, and other permanent features.
Valuing fixtures and fittings in a house sale can be done in a few ways:
1. Inclusion in the sale price: The value of fixtures and fittings can be included in the overall sale price of the house. This means that the buyer pays a higher price for the property, and the value of the fixtures and fittings is not separately itemized.
2. Separate valuation: If the buyer and seller agree to separately value the fixtures and fittings, a professional appraiser or valuer can be hired to assess their value. This can be useful in cases where the fixtures and fittings are of significant value or if the buyer wants to negotiate a separate price for them.
3. Negotiation: The value of fixtures and fittings can also be negotiated between the buyer and seller directly. This can be done based on the market value of similar items or through mutual agreement.
It’s important to note that the valuation of fixtures and fittings may vary depending on factors such as their condition, age, and market demand. It is advisable to consult with a real estate professional or seek legal advice to ensure a fair valuation and smooth transaction during a house sale.
Some examples of fixtures and fittings that are typically included in the sale of a house are:
1. Built-in furniture: This includes items such as built-in wardrobes, kitchen cabinets, bathroom vanities, and shelving units that are fixed to the property.
2. Light fixtures: These are permanent lighting fixtures such as ceiling lights, chandeliers, wall sconces, and pendant lights that are attached to the property.
3. Plumbing fixtures: Examples of plumbing fixtures that are usually included are sinks, toilets, bathtubs, showers, and faucets.
4. Appliances: Common appliances that are typically included in the sale are built-in ovens, stoves, refrigerators, dishwashers, and microwave ovens.
5. Window treatments: This includes curtains, blinds, and shutters that are fixed to the windows.
6. Central heating and cooling systems: Furnaces, air conditioning units, and other HVAC systems that are permanently installed in the property are typically included.
7. Flooring: In most cases, the flooring material such as carpets, hardwood floors, and tiles that are permanently fixed to the property are included.
8. Security systems: If the property has a built-in security system, it is generally included in the sale.
It’s important to note that the inclusion of fixtures and fittings may vary depending on the specific terms negotiated between the buyer and seller. It is recommended to review the sales contract and consult with a real estate professional to confirm the specific items included in the sale.
Some examples of built-in furniture that are typically included in the sale of a house are:
1. Built-in wardrobes: These are closets or storage units that are custom-built into the walls of the bedroom or hallway. They provide a convenient and permanent storage solution for clothing and other personal items.
2. Kitchen cabinets: Built-in kitchen cabinets are fixtures that are permanently installed in the kitchen. They provide storage space for dishes, cookware, and food items. This includes upper cabinets mounted on the walls and base cabinets installed beneath the countertops.
3. Bathroom vanities: A built-in bathroom vanity consists of a sink, countertop, and storage cabinets. It is fixed to the wall and typically includes drawers and/or shelves for storing toiletries and other bathroom essentials.
4. Shelving units: Built-in shelving units can be found in various areas of the house, such as living rooms, home offices, or libraries. These shelves are custom-made and installed directly into the walls, providing storage space for books, decorative items, and other belongings.
5. Entertainment centers: In some houses, there may be a built-in entertainment center in the living room or media room. These units are designed to accommodate audio-visual equipment such as TVs, speakers, gaming consoles, and provide storage space for media accessories.
It’s important to note that the inclusion of built-in furniture may vary depending on the specific terms negotiated between the buyer and seller. It is recommended to review the sales contract and consult with a real estate professional to confirm the specific items included in the sale.
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.
Jeffrey Avery
