Apportioning Stamp Duty Land Tax

Unless you qualify for one of a handful of exemptions, Stamp Duty Land Tax (SDLT) is payable when a purchase price for a residential property exceeds £125,000.00.  It is payable on the ‘chargeable consideration’ (as defined by the Revenue) which, in most cases, is the money paid by a purchaser in exchange for a property – the purchase price.

The current SDLT bandings are:

Up to £125,000                                 £zero

Over £125,000 to £250,000                     1%

Over £250,000 to £500,000                     3%

Over £500,000                                      4%

Fittings and contents do not incur an SDLT liability and, in any event, will usually be included in the price of the property, the vendor choosing not to ask for any additional payment from the purchaser. 

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.It is perfectly acceptable to include a price apportionment on the sale contract (between the value of the property and the value of fittings and contents) as long as that apportionment is backed up by a detailed inventory of the fittings and contents signed by the estate agent in their capacity as valuer. 

This is especially important where the apportionment results in less SDLT being paid because it brings the value of the property under the next SDLT threshold.

For example, a purchase price of £252,000.00 attracts SDLT equivalent to 3% of the value – resulting in an SDLT payment of £7,560. If fittings and contents 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.

However, if the property price only just falls into the next (and higher) tax bracket and allocating some of the price to fittings and contents will mean that the lower SDLT bracket is secured, the Revenue are more likely to investigate because of the risk of tax fraud.

Each year some SDLT returns are selected for review by the Revenue.  They can begin an enquiry at anytime within nine months of completion 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 outside the initial nine month window. They do have a policy of selective prosecution involving the most serious cases across the whole range of the tax system which they see as an important part of its strategy to deter tax fraud and evasion.

When considering apportionment therefore it is important to remember that a failure to pay SDLT that is rightfully due is a fraud on the Revenue and a criminal offence but an apportionment is acceptable if it is verified by an expert who can supply a detailed valuation of the fittings and contents which can be retained with your title deeds in case HM Revenue and Customs challenge your tax liability in the future.

For more information please telephone Naomi Wilson or log on to www.hmrc.gov.uk/sdlt

November 2010