Chattels and Stamp Duty

The problem

The inequities in the current way 'stamp duty' is charged inevitably mean that conveyancers are regularly faced with having to give unpopular advice to buyer clients seeking to reduce their liability, and seller clients, trying to increase their sale price. The most common approach is by paying the extra for 'fixtures and fittings'.

The current 'slab tax' regime

By way of background, in 2003 a new tax regime creating 'Stamp Duty Land Tax' (SDLT) replaced the old 'stamp duty' regime. It is still however commonly called 'stamp duty'. From a buyers perspective the changes may be pretty academic, as the bottom line is still that 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'. So property bought at under £125,000 is not subject to any change, but at £125,001 the charge is 1% charge on the total i.e £1,250. The next band is at £250,000, so a property at £250,000 is charged at 1% (£2,500) and at £250,001 would be charged at 3% (£7,500).

The regime is a tax on the price paid for the transaction. This is taken as not just the price which is shown on the documents, but anything else paid for that transaction even if it is separate i.e in a separate document, or a cash payment to the seller, or a payment made by the buyer for the sellers benefit- such as for their agents fees.

HMRC can raise an enquiry on any transaction within 9 months, this can be random or selective, but cynically one would be more inclined to expect this to be for a purchase at i.e exactly £250,000 rather than one at just over this amount.

'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 be costly.

'Just and reasonable'

Any price apportionment is perfectly permissible but must be 'just and reasonable'. Chattels must be 'moveable' and not fixed to the property, and forming part of it. It has however been established that in reaching the apportionment this does not need to use the exact value of the items. In establishing what is 'just and reasonable' it may be appropriate to take into account value to the buyer. A for instance is 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.

The HMRC guidance on what is a chattel can be viewed here.

Things that would be regarded as chattels would normally include:

• Carpets (fitted or otherwise)
• Curtains and blinds
• Freestanding furniture
• Kitchen white goods
• Light shares 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
• A 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

Whilst it can seem to be attractive to endeavour to reduce the SDLT liability on a property purchase by allocating a proportion of the purchase price to chattels, if there is an enquiry HMRC may seek to adjust this apportionment. If they are successful even by the smallest amount it can mean that the buyer becomes liable for the further tax. That is if tax is paid on £250,000 and HMRC correctly challenge just £1 of any chattels price, then the full further tax of £5,000 would then be payable

As an example in a case in 2012 (Orsman v HMRC), the buyer paid £250,000 for the house and £8,000 for 'fixtures and fittings' listed in the contract. HMRC concentrated on one item namely built in units in the garage included at £800. As they succeeded the buyer owed a further £5,024 in tax.

HMRC can also charge penalties and interest for any late payment.

Professional conduct issues for the conveyancers

The standard conveyancing retainer will not include providing any advice to a client faced with an enquiry from HMRC. In the case above Ms Orsman represented herself. In addition in acting for a buyer, the conveyancer will submit the SDLT return to HMRC as the buyer's agent. The return is self assessment, however if a conveyancer has any concerns that the return is incorrect they would have to consider withdrawing from acting for that party. At its most extreme an incorrect return could be deemed to be a fraud on HMRC. That is if the conveyancer was aware that an additional payment not reflected in the return was being made as part of the transaction, and was not justified as being for 'chattels'. Any conveyancer, whether acting for buyer or seller, would not risk being party to any such action, and would have to consider ceasing to act for a client implicating them in the illegal activity.

In conclusion

Any buyer who agrees an apportionment where the price is close to one of the SDLT rate thresholds, needs to be very careful to ensure that any items listed can properly be classed as 'chattels' which are not therefore subject to SDLT, as opposed to 'fixtures' which are, and further that the price paid for any particular item can be justified if put to the test.

For more information please speak to your usual Wards contact, or contact Susan Ellis on susan.ellis@wards.uk.com.