With the recent rise of interest rates and the cost-of-living crisis continuing to bite, many are looking to save money in the conveyancing process itself. Particularly, considering ways in which they may reduce their Stamp Duty Land Tax (“SDLT”) liability.
One approach may be to allocate some of the price agreed as a payment for chattels. However, caution should be exercised when taking this course of action and to begin with the distinction between chattels and fixtures must be understood.
What is a Fixture?
Broadly speaking a fixture is an item that is annexed to the property itself. Examples would include fitted kitchen units, cupboards, sinks, agas and wall-mounted ovens, fitted bathroom sanitary ware, central heating systems and intruder alarms. Plants, shrubs and trees can also count as fixtures.
Fixtures are part of the land and payment for these items may be subject to SDLT. The test which HMRC will use to establish if the item is a fixture depends on the degree and purpose of the annexation, with the emphasis being on the purpose of the specific item.
What is a Chattel?
A chattel is a separate item and does not form part of the land. Accordingly, it is not included in the calculation for SDLT liability.
HM Revenue and Customs does not provide a fully comprehensive list of items which they will consider chattels, but examples may include curtains, blinds, free-standing furniture, kitchen white goods (unless integrated), electric and gas fires (provided that can be removed without causing damage to the property), light shades and fittings and plants which are growing in pots or containers.
However, tempting it may be to pay over the odds for the seller’s chattels, this should not be attempted as only the fair-value of the chattels may be deducted from the purchase price and apportioned on a ‘just and reasonable basis’. A detailed list must be prepared and agreed between the parties, and it may be useful to obtain comparable evidence, for example, what is the going rate for a second-hand washing machine, if HM Revenue and Custom investigate the transactions. For more unique pieces, such as works of art, it would be advisable to get a valuation from qualified professional.
SDLT and potential issues
SDLT is a self-assessed tax and an increasingly complex area. Ultimately, the buyer is responsible for ensuring the accurate completion of the return and that if there is any part of the property purchase price apportioned to chattels that is ‘just and reasonable’.
HM Revenue and Customs are entitled to enquire into the accuracy of any return, investigate apportionments and establish if the items were in fact chattels. Over-valuation of chattels is a fraud which may render a buyer liable to criminal sanctions. It may also make the contract between the buyer and the seller unenforceable.
In the Conveyancing Process
You may consider taking advice from a tax specialist if you are looking to purchase items from the seller. In any event, you should discuss the issue with your conveyancer early in the transaction to avoid delays.