Smith & Williamson comment: Buyers beware of property on cusp of SDLT10th July 2012

Helen Demuth, Partner at Smith & Williamson, the accountancy and investment management group, which has an office in Bristol, warns that property purchasers should be cautious when buying fittings with a property and should ensure that items included within the sale are valued appropriately.
 
A recent case has confirmed the problems that can occur when buying a property, which is on the cusp of two bands of stamp duty land tax, particularly if the sale includes furniture and carpets.

The case of Orsman v HMRC highlighted that where there is a combined sale of land or property with other items, such as carpets and furniture etc, HMRC may review and contest the arrangement and the definitions used. This is particularly relevant where the cost of the items brings the property within a lower Stamp Duty Land Tax (SDLT) band.
 
It is therefore important that the seller and buyer can apportion the sale on a ‘just and reasonable’ basis. 
 
If items are fixed to the property, they become part of the land and so taxable under SDLT. (See rates below).
 
In March 2010 Miss Orsman bought a house together with certain chattels for a total of £258,000. Of that amount £8,000 was described as being for "Chattels". 
 
Based on this apportionment, the transaction was subject to SDLT at a rate of 1 per cent on £250,000, giving rise to a tax charge of £2,500. 
 
However, HMRC queried this case, which went before the Tax Tribunal who disagreed with the taxpayer’s valuation and apportionment to chattels. As a result, the purchase price of the property was resettled at £250,800, giving rise to an SDLT rate of 3 per cent, that is £7,524 (which was £5,024 more than the original amount of SDLT).
 
“The simple message in this age of greater tax scrutiny, is that if you are buying residential property, which falls on the cusp of one of the SDLT bands, be aware that the SDLT return may well be selected for review and enquiry," said Helen Demuth.
 
“As a rule of thumb, if an item is fixed to the property or growing in the land, then it forms part of the property and is liable to SDLT.”  
 
“For example, fitted kitchens, fitted cupboards, bathroom fittings and alarm systems, as well as trees and plants growing in the soil would normally be charged to SDLT.  However, moveable chattels including carpets, curtains, furniture (providing they are not fixed to the property or land), washing machines and similar white goods and light shades normally fall outside SDLT.”
 
Current rates of SDLT on the acquisition of residential property in the UK:
Sale price                    % rate of SDLT on total value of the property
Below £125,000                      nil
£125,001 - £250,000               1%
£250,001 - £500,000               3%
£500,001 - £1,000,000            4%
£1,000,001 - £2,000,000         5%
Over £2,000,000                      7%*
*SDLT becomes 15% where purchased through a company or certain other structure