More Temptation to Avoid Stamp Duty Land Tax?
More Temptation to Avoid Stamp Duty Land Tax?
From 6th April 2011 Stamp Duty Land Tax (SDLT) will be increased to 5% for properties
worth 5%.
It therefore remains important to Buyers, Sellers, Estate Agents and their lawyers that the rules for apportioning SDLT between land and contents is understood - as the temptation to avoid SDLT will become that bit greater.
SDLT is generally (i.e there are certain exemptions) payable when a purchase price for a residential
property exceeds 125,000.00.
The current SDLT threshold bandings are:
Purchase price
Up to 125,000 Zero
Over 125,000 to 250,000 1%
Over 250,000 to 500,000 3%
Over 500,000 4%
However, when a property is valued slightly above an SDLT banding, the purchaser or even seller, may try to come to some sort of arrangement over the price so as to bring it under and into the preceding banding. They typically do this by offering a separate price for various items of the house contents.
Why? Because certain house contents which satisfy the definition of "Chattels" (as defined by the Revenue) do not incur SDLT liability.
It is perfectly acceptable to apportion a property value in the sale contract (between the value of the property and the value of chattels) as long as that apportionment is backed up by a detailed inventory of the chattels independently valued at its correct market value (ebay value if you will), perhaps ideally signed by the estate agent in their capacity as valuer.
But tread carefully! The Inland Revenue impose criminal sanctions on those that defraud them -
those that incorrectly value the exempt chattels.
However, in the majority of transactions, an apportionment is simply not done, as it saves very little SDLT when the property price is not close to another SDLT banding, and the house contents are few and far between - as most people take their contents when they move.
Occasionally however, an item is of such value that it warrants the payment of an additional sum to the vendor on completion and its price is then referred to separately in the sale contract. However, the warning of caution is due to the fact that when buyer or seller (or both) are close to an SDLT banding, they may try to invoke the apportionment rules to find a solution but they overvalue the contents - and so expose themselves to the wrath of the Revenue.
For example, a purchase price of 252,000.00 attracts SDLT at 3% of the value - resulting in an SDLT payment of 7,560. If chattels are valued at 2,000 and the property price reduced to 250,000 SDLT is only payable at 1% on 250,000.00 giving a liability of 2,500. Worth doing, but only if the 2,000 worth of chattels are properly valued at that, and are items are indeed those which the Inland Revenue classify as chattels (as opposed to 'fixtures' which are never exempt) from SDLT.
'Oh but who will find out?' If the property price only just falls into the next (and higher) SDLT banding and allocating some of the price to chattels will mean that the lower SDLT banding is secured, the Revenue are more likely to investigate because of the risk of tax fraud. The Buyer's solicitor completes and submits an SDLT return, and when a property price is close to a banding, all the Inland Revenue have to do is make a call to the solicitor to ask what extras were paid for, and seek a list to test the valuation or even whether the items are chattels or have 'fixtures' been included in error.
Scary prospect, as both solicitors, Buyer and Estate Agents can all be held to account.
Even worse is that the Inland Revenue can begin an enquiry at anytime within nine months of completion of the property deal, but where the Revenue believe that not enough SDLT has been paid because the purchaser has acted negligently or fraudulently, they can go back to a transaction beyond the initial nine month window.
When considering an apportioned price, get the valuation right, and retain a copy for your records in
case HM Revenue and Customs challenge your tax liability in the future.
Watch Off The Map Season 1 Episode 10 VAT Increase - Has Your Conveyancer Met the Challenge? Barbeque Grills Cleaning Guide Who IS Your Conveyancer? If I am Positive, Will I Get What I Want? SDLT Increase April 2011 The Top 15 Ways to Ensure You Secure the Right Conveyancer? The Aftermath of HIPs - Solution Based Conveyancers Remain a Must Things to Know About Fixed Blade Tactical Knives Military Tactical Knives Folding Pocket Knives Pesky Pests Need Expert Help To Send To Send Them On Their Way NHBC Cover - The Lack of Awareness