In brief:
- Stamp Duty Land Tax (SDLT) is paid on the purchase price of a residential property excluding any amount paid for chattels.
- Where a property is sold together with valuable fixtures and fittings it is a legitimate tax planning exercise to apportion the total price paid between the property itself and the chattels so as to reduce the SDLT payable.
- Overinflating the value of the chattels is, however, fraudulent and HMRC can and do investigate transactions where this appears to be the case.
- We consider what you should do if you want to use this strategy.
- Getting the apportionment right
One question that comes up regularly in residential property transactions is whether part of the purchase price can be attributed to chattels, reducing the amount of SDLT payable. The short answer is yes, and when handled correctly, it is entirely legitimate. However, it needs to be approached with care because HMRC takes a keen interest in chattel apportionments that it considers to be overvalued, that include items misclassified as chattels rather than fixtures, or that are poorly evidenced.
Fixtures versus chattels: understanding the distinction
The starting point is understanding the difference between fixtures and chattels. Fixtures are items physically annexed to the property that would cause damage if removed. They form part of the land for SDLT purposes. Examples include fitted kitchens, integrated appliances, bathroom suites and central heating systems. Chattels, by contrast, are moveable items that retain their identity when removed, such as carpets, curtains, freestanding furniture and artwork. Only the portion of the purchase price attributable to land and fixtures is subject to SDLT, whereas any portion of the purchase price attributable to chattels falls outside the scope of SDLT.
The "just and reasonable" requirement
It does not matter that the parties to a transaction may agree a particular apportionment which is then documented in the contract. The apportionment will not be correct unless it was arrived at on a just and reasonable basis. This is a legal requirement, not simply a matter of commercial agreement.
Valuation
This is where things often go wrong. Solicitors are not valuers and it is not our role to advise on what chattels are worth. The responsibility sits with the parties to the transaction, and the ultimate liability is with the buyer. On completion, the buyer will make a self-assessed SDLT return through their solicitors. This should reflect the price paid for land and fixtures, excluding the chattels. A buyer will expect a seller to provide a list of itemised chattels, and the more detail the better. Ideally this should include a clear description of each item, a photograph where that is practical and relevant, and an individual value attributed to each item.
In some cases, where the figures are material, a formal valuation from a qualified valuer is worth obtaining. HMRC's position is that chattels should be valued at their open market value at the effective date of the transaction, taking into account age, condition and depreciation. In practice, this means their value will typically be lower than what the seller originally paid for them. A list of contents with no realistic or supported valuation is unlikely to satisfy HMRC.
HMRC's powers of enquiry
HMRC can open an enquiry into an SDLT return to challenge whether items genuinely qualify as chattels and whether the values attributed to them are supportable. Where it does so, it will involve the Valuation Office Agency and will ask for an itemised schedule of the relevant items along with their condition and open market value at the effective date of the transaction. Being unprepared for that request can be uncomfortable and costly.
A few practical thoughts
Where a chattel apportionment is being considered, the following practical steps should be taken:
- Identify clearly which items are genuinely chattels, moveable and removable without causing damage to the fabric of the property.
- Question whether the agreed value reflects open market value with appropriate depreciation, not original purchase price (unless of course the items are brand new).
- Where figures are material or there is any uncertainty, obtain a formal valuation from a qualified valuer.
- Reflect the apportionment in the sale contract and append a contents schedule to evidence the calculation by adding a description/photograph of each item; the devil is in the detail.
Getting chattel apportionments right is both a compliance obligation and a legitimate tax-planning opportunity, but it must be approached carefully and with proper evidence.
How we can help
If you would like to discuss any aspect of this further, please do get in touch with any one of our residential property team.