Stamp Duty Land Tax: keep apportionments reasonable

Apportionments made for chattels must be just and reasonable and, particularly when they bring a property near one of the SDLT thresholds, are likely to attract HMRC scrutiny as one taxpayer recently discovered to her detriment.

The stamp duty land tax (SDLT) treatment of residential property acquisitions has been in the news a great deal recently. A new 15 per cent SDLT rate for certain high value (£2 million plus) residential property transactions involving corporate purchasers was introduced in the Finance Bill 2012, along with a new 7 per cent rate for other £2 million plus residential purchases.

However, a recent tribunal case reminds taxpayers of the need to keep basic rules of SDLT in mind notwithstanding recent, more technical, changes.

Underlying principles

Two general principles of SDLT are relevant to the tribunal decision:

1. Where consideration for an acquisition comprises payment for (a) land and (b) other assets which do not attract SDLT, the taxpayer must make a “just and reasonable” apportionment to ascertain how much of the overall consideration is consideration for the land element, and therefore subject to SDLT.

2. Items which have become sufficiently attached to the land to comprise fixtures are treated as part of the land for SDLT purposes, so any amount paid for those fixtures is part of the chargeable consideration for SDLT purposes.

The recent tribunal case considered a house purchase in March 2010 by Miss Orsman. She paid £250,000 for the house and £8,000 which was described as being for “chattels”. She paid £2,500 of SDLT (being 1 per cent of the stipulated price for the house).

HMRC investigates

HMRC issued a notice of enquiry and undertook a close review as to the nature of these “chattels”. This was no doubt motivated by the fact that the £250,000 stipulated house price was right on the upper limit of the 1 per cent rate of SDLT (with SDLT payable at 3 per cent thereafter). Their investigations, which at one stage involved evidence from Miss Orsman as to a wardrobe which she could lift and which was not therefore a fixture, identified built-in fitted units with worktops located in the garage, which were valued at £800.

HMRC accordingly considered that the consideration for the land should be £250,800 (the price for the house and £800 for the fixtures – namely, the fitted units with worktop), and that SDLT should be charged on that amount at 3 per cent. This resulted in an extra £5,024 of SDLT. Unfortunately for Miss Orsman, the tribunal agreed with HMRC.

Keep it reasonable

There is an obvious incentive for taxpayers to try to keep the chargeable consideration for land (including fixtures) below the nearest SDLT threshold, so as to either avoid SDLT altogether or keep the consideration within the lowest percentage rate possible. However, this tribunal decision is a useful reminder that any apportionments need to be made on a just and reasonable basis – and that HMRC can be expected to scrutinise any apportionment which is at or near one of the SDLT thresholds.

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