Caswell Clyne Solicitors
MEMORANDUM
To : Michael Clyne
From : Trainee
Date : 16th November 2014
Client Name : John Williams
Matter : Stamp Duty Land Tax
Thank you for your memorandum of 3rd November 2014 with instructions to carry out research in respect of the above matter.
Whilst the Scottish government now has devolved powers in respect of SDLT (Stamp Duty Land Tax), which has been replaced with Land and Buildings Transaction Tax, SDLT still applies in Wales. However, there is a target date of April 2018 for Wales to have devolved power in respect of SDLT.
I have checked the current thresholds and rates of SDLT in the Finance Act 2003 (Part 4, s55). For residential property, if the relevant consideration is £125,000 or less then 0% is payable but if the relevant consideration is over £125,000 (and not more than £250,000) then 1% is payable. SDLT is payable on the full relevant consideration, not just the part which exceeds the threshold. Therefore, a purchase price of £127,000 would attract £1,270 in respect of SDLT but a purchase price of £125,000 would attract £0.
Before addressing each of the three points you have asked me to research, I would like to check the following three things:
Firstly, you have mentioned in your memorandum that the property is residential. Is the property fully residential? The threshold for non-residential or mixed property (which includes partly residential and partly non-residential property) varies from that of residential property. Under s55, Part 4 of the Finance Act 2003, no SDLT is payable if the relevant consideration is not more than £150,000 for non-residential or mixed property. Therefore, if the property is mixed, then a purchase price of £127,000 would not attract liability for SDLT.
Secondly, is there any remit for the client to negotiate a reduction of the purchase price with the seller? Is there perhaps some defect which has been discovered or limitation which would affect the buyer’s use of the property? However, this must be approached with care to ensure that the seller does not withdraw from the transaction.
Thirdly, is the property freehold or leasehold, and if leasehold, will the purchaser be
paying any rent? Under Schedule 5 of the Finance Act 2003, rent will be subject to SDLT.
I will now go on to discuss each of the three points that you have requested that I research in turn.
Claiming disadvantaged area relief
Unfortunately, disadvantaged area relief is no longer available. S57 of the Finance Act 2003, which relates to disadvantaged areas relief, has been repealed by Schedule 39(1), paragraph 8(1) of the Finance Act 2012. This was repealed on 17th July 2012 and has effect in relation to transactions of which the effective date is on or after 6th April 2013.
However, there may be other full or partial reliefs available. To find out if the client may be eligible for any other full or partial reliefs, I will need to ascertain the following:
Whether the client is buying the property in a personal capacity or whether he is part of a house building company, a property trader or employer in the case of re-location?
Whether the client is purchasing multiple dwellings?; or
Whether the purchase is a right to buy transaction?
Arranging the apportionment of the purchase price between the land element and price for chattels to avoid civil and criminal penalties
SDLT is charged on chargeable land transactions. Under s48 of the Finance Act 2003, an estate, interest, right or power in or over land in the UK is a chargeable land transaction. Land is defined as including buildings and structures, therefore any fixtures to the land are considered to be part of the land for SDLT purposes. Fittings and chattels do not form part of the land and consequently fall outside the scope of SDLT.
To apportion the purchase price between the land element and the price for chattels it is necessary to ensure the following:
That items apportioned from the purchase price are chattels and not fixtures; and
That any apportionment is just and reasonable. Schedule 4 paragraph 4 of the Finance Act provides that consideration attributable in part to a land transaction and in part to another matter shall be apportioned on a just a reasonable basis.
The case of Holland v Hodgson established two criteria for assessing whether something is part of the land or whether it is a chattel distinct from the land. Whilst this is an 1861-73 case, it still remains good authority. The criteria are:
The degree of annexation of an item to the land: is it, and how firmly is it fixed and what damage will be done by its removal; and
The purpose of the annexation: was the intention to better enjoy the land or the item?
HMRC places an emphasis in many cases to purpose.
The Court of Appeal in Berkley v Poulett emphasised that an unfixed object can still be a fixture if its purpose is to better enjoy the land rather than the object itself and a fixed object can still be chattel if its purpose is for the better enjoyment of the object itself.
In Botham v TSB, the Court of Appeal held that kitchen worktops were fixtures but that ‘white goods’ (fridge, oven etc.) remained chattels. For the ‘white goods’ the degree of annexation was slight, they could be bought separately and were designed to last for a limited period of time.
An important case in this area is the 2012 case of Orsman v Revenue and Customs Commissioners. The court upheld an amendment by the Revenue to a land transaction return and held that fitted units and a worktop in a garage (which were included in a list of chattels) were fixtures and part of the land. The worktop was fixed to the house and made it possible to use that part of the garage as a working area. The units had a small degree of affixation but were in place to make the garage a useful storage and work area, a facility which enhanced the house. The Court held it was just and reasonable to apportion £250,800 (not £250,000 which the appellant had apportioned to the house) of the consideration paid to the house and garage worktops and units. This meant that the transaction was subject to a higher rate of Stamp Duty Land Tax. This case shows that HMRC are increasingly active in pursuing SDLT transactions where an apportionment has been made, especially when a house purchase price is close to a SDLT threshold. It also shows that HMRC is not just targeting large-scale tax avoidance but also avoidance of smaller sums.
It is the responsibility of the buyer to ensure that apportionments are just and reasonable when completing the land transaction return and it is irrelevant that the parties to the transaction agreed to a particular apportionment. Items must be valued at a rate reflecting their fair market value, taking into account factors such as age, quality etc. It would be worth attempting to obtain receipts/valuations from the sellers for any items to be sold separately in order to determine that a fair and reasonable price is agreed and in case HMRC were to investigate and request evidence. When apportioning, the amount specified for chattels should be included as part of the contract for sale and the amount agreed for each chattel should be stated separately on the fixtures and fittings list which should be attached to the contract. A point worth noting is a false apportionment may render a contract for sale unenforceable which would of course have extreme consequences.
Items HMRC will accept as being chattels for purpose of any valid apportionment in order to avoid payment of SDLT
HMRC in its SDLT manual has produced guidance on items which are and which are not regarded at chattels. However, HMRC have pointed out that this is not a comprehensive list and each case will be considered in light of its own circumstances. The law is still developing in this area.
Generally, the following will be regarded as chattels:
carpets (fitted or otherwise);
curtains and blinds;
free standing furniture;
kitchen white goods (e.g. fridge, oven);
electric and gas fires (provided that they can be removed by disconnection from the power supply without causing damage to the property);
light shades and fittings (unless recessed); and
Plants growing in pots or containers.
The following will not generally be regarded as chattels:
fitted kitchen units, cupboards and sinks;
agas and wall mounted ovens;
fitted bathroom sanitary ware;
central heating systems;
intruder alarm systems; and
any plants, shrubs or trees growing in the soil which forms part of the land.
Points worth noting
If the purchase price is apportioned between the land element and chattels bringing the purchase price to £125,000 or below, it will still be necessary to submit a land transaction return to HMRC. The return must be submitted within 30 days of completion under s76 of the Finance Act 2003 even though no SDLT will be payable. The Land Registry will not register the property without a certificate confirming compliance with the requirements of SDLT under s79 of the Act. The purchaser may be subject to a penalty with interest for late submittal or failure to submit.
HMRC may make an inquiry into a land transaction return by notice within 9 months from the filing date under Schedule 10 part 3 paragraph 12 of the Finance Act 2003. An enquiry may be opened for various reasons including the apportionment of the purchase price. HMRC can also amend a return where it deems the tax to be insufficient making the purchaser liable to pay more tax. Under s87 and s88 of the Act unpaid tax and penalties will be subject to interest.
Under Schedule 10 paragraph 9 of the Finance Act 2003 the purchaser is under a duty to keep and preserve records for 6 years from the date on which HMRC no longer has the power to open an inquiry. Failure to keep and preserve records may be subject to a penalty.
It is important to bear in mind the SRA Principles 2011. In particular, principle 1, 2 and 6.
If there is a lender involved in the transaction you will need to consider whether any apportionment could affect their interest. You will need to report to the lender any change of purchase price which could mean they may revoke or amend the mortgage offer.
You will need to bear in mind anti-money laundering procedures and your compliance obligations. Should the client ask you to effect an irregular apportionment to avoid paying SDLT, this may bring the matter within the ambit of the legislation.
In addition to acting for the buyer, you will also submit the SDLT return to HMRC as the buyer’s agent. Any incorrect return submitted could have consequences on you (as a solicitor) and the firm, at the most extreme the act could be deemed to be fraud.
An offence is committed by a person if he is knowingly concerned in the fraudulent evasion of stamp duty land tax by him or any other person under S95 of the Finance Act 2003. A person guilty of such offence can be liable to imprisonment, a fine, or both. A person who assists in or induces the preparation or delivery of any information, return or other document that he knows will be, or is likely to be, used for any purpose of stamp duty land tax, and which he knows to be incorrect, is liable to a penalty not exceeding £3,000.
Stamp duty land tax is subject to the General Anti Abuse Rule under s206 Part 5 of the Finance Act 2013. The purpose of this rule is the counteract tax advantages arising from tax arrangements that are abusive. Under s209 of the Act, if tax arrangements are abusive, the tax advantages that would arise from the arrangements are to be counteracted by the making of adjustments.
The investigation powers of HMRC can last for a period of up to 21 years.
Time engaged: 150 units
Research trail
Search topic
Stamp duty land tax
Keywords to search
“Stamp duty land tax” and apportion!
Information source used
LexisNexis PSL Practice note headed ‘SDLT- chargeable consideration’
Access points
Accessed LexisNexis PSL through the University library
In the search box on the right-hand side I entered “Stamp Duty Land Tax” and apportion!.
I used double quotation marks (“”) to conduct phrase searching, the ‘and’ Boolean connector to ensure that my search retrieved items which included both key words to narrow my search and the ‘!’ symbol for truncated words to ensure that my search included all different word endings, i.e apportion, apportionment, apportioned.
This search returned 25 results. I scrolled down the list and located a note to give me an overview of Stamp duty land tax
I clicked on the Practice note headed ‘SDLT- chargeable consideration’ which was search result 18
Date of search
4th November 2014
Evaluation of material
This practice note proved to be a useful introduction to the topic. The note provided the following information of use in my research task:
The definition of chargeable consideration
Consideration must be apportioned on a just and reasonable basis and consideration given for what is in substances one bargain is treated as attributable to all elements of the bargain, notwithstanding that separate consideration is given for different elements of the bargain or there are separate transactions in respect of them
Two criteria for assessing whether something is part of the land or whether it is a chattel distinct from the land a) the degree of annexation of an item to the land b) the purpose of annexation
Referred to the cases of 1.Botham v TSB [1996], 2.Orsman v The Commission for Her Majesty’s Revenue and Custom [2012], 3.Brudenell-Bruce, Earl of Cardigan v Moore
By scrolling over the various orange speech buttons on the practice note the following was revealed which I will look into in more depth during the research task: a) Finance Act 2003 s50, s52 and Sch 4 b) HMRC SDLT manual c) Secreton v Hart [1969], Holland v Hodgson [1861-73] and Berkley v Poulett [1977]
Next steps
Look into when SDLT becomes payable and at which rates
Search topic
Stamp duty land tax rates
Keywords to search
Searched by topic
Information source used
LexisNexis PSL Practice note headed ‘SDLT- rates of SDLT’
Access points
Accessed LexisNexis PSL through the University library
In the top left-hand corner I changed the Practice area to ‘Property’
I then clicked on View topics in the top left-hand corner and selected ‘Stamp duty land tax’ under ‘Property taxes’
This search returned 62 Practice notes. I clicked on View all and located a note to give me an overview of rates of stamp duty land tax
I clicked on the second Practice note headed ‘SDLT- chargeable consideration’
Date of search
4th November 2014
Evaluation of material
This note referred to s55 to s56 of the Finance Act 2003 which details the rates of SDLT payable. It also states that the legislation differs between residential and non-residential property. Partly residential and party non-residential property is considered as non-residential property.
Further the following link is available ‘Land transactions, chargeable interests and chargeable transactions’ which I will look into in my research task
Next steps
To look at s55 to s56 of the Finance Act 2003 to find rates of SDLT payable
Search topic
Stamp duty land tax rates
Keywords to search
Finance Act 2003
Information source used
Westlaw Legislation
Access points
Accessed Westlaw through the University library.
Clicked on Legislation at top of page
Entered ‘Finance Act 2003’ in Act/SI Title box and clicked search
Clicked on arrangement of Act on ‘Finance Act 2003’, first option
Scrolled through Act to s55 and clicked
Noted Status- Law still in force amendments pending
Date of search
4th November 2014
Evaluation of material
The legislation provided the thresholds and rates of SDLT applicable to my research task:
Residential property- if the relevant consideration is £125,000 or less then 0% is payable for SDLT, if the relevant consideration is over £125,000 but not more than £250,000 then 1% is payable
Non-residential or mixed property- if the relevant consideration is not more than £150,000 then 0% is payable for SDLT
Therefore, on the purchase price of £127,000, £1,270 would be payable in respect of SDLT. However, if the purchase price was £125,000, nothing would be payable in respect of SDLT. This is a substantial difference
Noted that Part 4 and Schedules 3-20 of the Act deals with Stamp Duty Land Tax- will look further into these provisions for my research task to ascertain which are relevant. Also, noted that large sections of the Act have been repealed.
Next steps
To look for the provision relating to disadvantaged area relief in the Finance Act 2003
Search topic
Disadvantaged area relief
Keywords to search
Finance Act 2003
Information source used
Westlaw Legislation
Access points
Accessed Westlaw through the University library.
Clicked on Legislation at top of page
Entered ‘Finance Act 2003’ in Act/SI Title box and clicked search
Clicked on arrangement of Act on ‘Finance Act 2003’ first option
Scrolled through Act and located ‘s57 Disadvantaged areas relief’ and clicked
Date of search
4th November 2014
Evaluation of material
This section of the Act has been repealed by the Finance Act 2012, Sch 39(1) para.8(1). This was repealed on 17th July 2012 and has effect in relation to transactions of which the effective date is on or after April 6, 2013 subject to transitional provisions specified in Sch 39 para.12 of the Finance Act 2012
Next steps
Will check Sch 39 para.12 of the Finance Act 2012
Search topic
Disadvantaged area relief
Keywords to search
Finance Act 2012
Information source used
Westlaw Legislation
Access points
Accessed Westlaw through the University library.
Clicked on Legislation at top of page
Entered ‘Finance Act 2012’ in Act/SI Title box and clicked search
Clicked on arrangement of Act on ‘Finance Act 2012’, third option
Scrolled through Act and located ‘Sch 39 para.12 clicked
Date of search
4th November 2014
Evaluation of material
This was not relevant to my research task as it applies only in respect of contract entered into before or on 16 March 2005
Next steps
To look at Halsbury’s Laws of England to gain more of a background into all areas of SDLT
Search topic
Stamp duty land tax
Keywords to search
Stamp duty land tax
Information source used
Halsburys Laws of England, volume 96 (2012) 5th edition, paragraphs 425-600
Access points
In the University Law Library I looked up ‘Stamp Duty Land Tax’ in the Consolidated Index 2013 P-Z
This referred to Volume 96
Located Volume 96 and used the Table of Contents to locate Stamp Duty Land Tax under Stamp Taxes which referred to page 319
Went to page 319 and read paragraph 425-600 (page 319-435)
I used the Cumulative Supplement Part 2 2013 for 4th and 5th editions to ensure that no changes had been made to my source since publication (the Law Library did not contain the Cumulative Supplement for 2014 or the monthly Noter-Up booklets for 2014). I located volume 96, 5th edition and under Part 4. Stamp Duty Land Tax noted the following paragraphs had additions- 428,438,441,448,452,453,470 (none of which I relied on in my research)
I used the Current Services Noter-up Issue 486 for December 2013 to ensure that no changes had been made to my source since publication of the Cumulative Supplement until the end of 2013. I located Volume 96 (2012), and under Stamp Taxes the majority of paragraphs revealed were paragraphs that I had not used in my research. However, there was the following note under 477. 477- Note 11- 2003 Act Sch 15 para 30(2) amended: Finance Act 2012 Sch 35 para 9 (3)
To double-check the accuracy of the source in the absence of the latest Cumulative Supplement and Noter-Up booklet, I checked the source on LexisNexis following the steps detailed below:
Accessed LexisNexis Library through the University library
On the homepage I clicked on Browse
Scrolled down to Stamp Taxes (Volume 96 (2012) 5th Edition) and clicked the + symbol to the right
Clicked on 4. Stamp Duty Land Tax
Viewed paragraph 425 and clicked next to view all paragraphs to 600 checking for any applicable updates or amendments
Date of search
7th November 2014
Evaluation of material
Found the following useful information:
443. Amount or value of chargeable consideration
Where the chargeable consideration for a land transaction consists of the carrying out of works of construction, improvement or repair of a building, or other works to enhance the value of land, then to the extent that:
(1) the works are carried out after the effective date of the transaction;
(2) the works are carried out on land acquired or to be acquired under the transaction or on other land held by the purchaser or a person connected with him; and
(3) it is not a condition of the transaction that the works are carried out by the vendor or a person connected with him,
the value of the works does not count as chargeable consideration
456. First time buyers
Relief not applicable in this case as only applies if the effective date of the transaction is on or after 25 March 2010 but before 25 March 2012
457. Acquisitions of residential property by house-building companies, property traders and employers
Discusses certain exemptions that may be available to house-building companies, property traders and employers
477. Duty to deliver land transaction return.
Purchaser must deliver a land transaction return to HMRC within 30 days of completion which must include an assessment of the tax chargeable in respect of the transaction
A person who fails to deliver a land transaction by the filing date is liable to a penalty of £100 if delivered within three months after the filing date and £200 in any other case
A person who fails to deliver a land transaction return within 12 months after the filing date is liable to a tax-related penalty of an amount not exceeding the amount of tax chargeable in respect of the transaction
479. Inquiry into return
HMRC may inquire into a land transaction return if it gives notice of its intention to do so to the purchaser before the end of the inquiry period. The ‘inquiry period’ is the end of the period of nine months:
(1) after the filing date, if the return was delivered on or before that date;
(2) after the date on which the return was delivered, if the return was delivered after the filing date;
(3) after the date on which the amendment was made, if the return is amended by the purchaser.
An inquiry extends to anything contained in the return, or required to be contained therein, that relates to the question whether tax is chargeable in respect of the transaction, or the amount of tax so chargeable.
If at a time when an inquiry is in progress, HMRC forms the opinion that the amount stated in the self-assessment contained in the return as the amount of tax payable is insufficient and that, unless the assessment is immediately amended, there is likely to be a loss of tax to the Crown, it may, by notice in writing to the purchaser, amend the assessment to make good the deficiency.
At any time when an inquiry is in progress, any question arising in connection with the subject matter of the inquiry may be referred to the tribunal for its determination. Notice of referral must be given in writing to the tribunal, jointly by the purchaser and HMRC. The determination of a question so referred is binding on the parties to the referral in the same way, and to the same extent, as a decision on a preliminary issue in an appeal. The determination must be taken into account by HMRC in reaching its conclusions on the inquiry and in formulating any amendments of the return required to give effect to those conclusions.
An inquiry is completed when Her Majesty’s Revenue and Customs by notice (a ‘closure notice’) informs the purchaser that it has completed its inquiries and states its conclusions. A closure notice must state either that, in the opinion of Her Majesty’s Revenue and Customs, no amendment of the return is required, or make the amendments of the return required to give effect to its conclusions.
The purchaser may apply to the tribunal for a direction that HMRC give a closure notice within a specified period
480. Duty to keep and preserve records
A purchaser who is required to deliver a land transaction return must keep such records as may be needed to enable him to deliver a correct and complete return, and preserve those records until the end of the later of the relevant day and the date on which an inquiry into the return is completed or, if there is no inquiry, Her Majesty’s Revenue and Customs no longer has power to inquire into the return. A person who fails to comply with the above provisions in relation to a transaction is liable to a penalty not exceeding £3,000, but no penalty is incurred if Her Majesty’s Revenue and Customs is satisfied that any fact that it reasonably requires to be proved, and that would have been proved by the records, are supported by other documentary evidence provided to it.
484. Assessments
If Her Majesty’s Revenue and Customs discovers, as regards a chargeable transaction, that an amount of tax that ought to have been assessed has not been assessed, that an assessment to tax has become insufficient, or that relief has been given that is or has become excessive, it may make an assessment (a ‘discovery assessment’) in the amount or further amount that ought, in its opinion, to be charged in order to make good to the Crown the loss of tax.
However, if the purchaser has delivered a land transaction return in respect of the transaction in question, an assessment under either of the above provisions may only be made:
(1) where the situation is attributable to fraudulent or negligent conduct on the part of the purchaser, a person acting on his behalf, or a person who was a partner of the purchaser at the relevant time; or
(2) where Her Majesty’s Revenue and Customs, at the time it ceased to be entitled to give a notice of inquiry into the return, or completed its inquiries into the return, could not have been reasonably expected, on the basis of the information made available to it before that time, to be aware of the situation.
Notice of an assessment must be served on the purchaser stating the tax due, the date on which the notice is issued, and the time within which any appeal against the assessment must be made.
The general rule is that no assessment may be made more than four years after the effective date of the transaction to which it relates. An assessment of a person to tax in a case involving a loss of tax brought about carelessly by the purchaser or a related person may be made at any time not more than six years after the effective date of the transaction to which it relates. An assessment of a person to tax in a case involving a loss of tax: (a) brought about deliberately by the purchaser or a related person; (b) attributable to a failure by the person to deliver a return; or (c) attributable to arrangements in respect of which the person has failed to comply with the provisions for disclosure of avoidance schemes, may be made at any time not more than 20 years after the effective date of the transaction to which it relates.
487. Interest on tax and penalties
Interest is payable on the amount of any unpaid tax from the end of the period of 30 days after the relevant date until the tax is paid.
A penalty carries interest from the date it is determined until payment.
Any repayment of tax or of a penalty carries interest from the date on which the tax or penalty was paid (‘the relevant date’) until the date when the order for repayment is issued.
502. Collection and recovery
If a person neglects or refuses to pay the sum charged, upon demand made by the collector, the collector may distrain upon the goods and chattels of the person charged. For the purposes of levying such distress, a justice of the peace, on being satisfied by information on oath that there is reasonable ground for believing that a person is neglecting or refusing to pay a sum charged, may issue a warrant in writing authorising a collector to break open, in the daytime, any house or premises, calling to his assistance any constable. A levy or warrant to break open must be executed by, or under the direction of, and in the presence of, the collector, and a distress levied by the collector must be kept for five days, at the costs and charges of the person in default. If the person in default does not pay the sum due, together with the costs and charges, the distress must be appraised by one or more independent persons appointed by the collector, and must be sold by public auction by the collector for payment of the sum due and all costs and charges.
An amount not exceeding £2,000 due and payable by way of stamp duty land tax is recoverable summarily as a civil debt in proceedings brought in the name of the collector. All or any of the sums so recoverable that are due from any one person and payable to the collector, may be included in the same complaint, summons or other document required to be laid before or issued by justices.
Tax due and payable may be sued for and recovered from the person charged as a debt due to the Crown in a county court. Tax may be sued for and recovered from the person charged as a debt due to the Crown, or by any other means by which a debt of record or otherwise due to the Crown may be sued for and recovered, by proceedings in the High Court.
509. Stamp duty land tax offences and penalties
A person commits an offence if he is knowingly concerned in the fraudulent evasion of stamp duty land tax by him or any other person.
A person who assists in or induces the preparation or delivery of any information, return or other document that he knows will be, or is likely to be, used for any purpose of stamp duty land tax, and which he knows to be incorrect, is liable to a penalty not exceeding £3,000.
Next steps
To look at the SDLT manual which has been referred to in Halsburys Laws of England and Practice notes
Search topic
Stamp duty land tax
Keywords to search
Stamp duty land tax
Information source used
Stamp Duty Land Tax Manual
Access points
Accessed www.hmrc.gov.uk
Clicked on ‘Individuals & Employees’
Clicked on ‘More topics’ under ‘Tell me about…’
Clicked on ‘Stamp Duty Land Tax’ under ‘Individuals & ‘Employees’
Clicked on ‘SDLT manual’ on right-hand side
Date of search
8th November 2014
Evaluation of material
Discovered following information of use to my research task:
The General Anti Abuse Rule (GAAR) introduced from 17 July 2013 when the Finance Act 2013 was passed applies to SDLT.
Notifiable transactions include those where tax is chargeable at the 0% rate (unless the chargeable consideration for that and all linked transactions is not greater than £40,000) and cases where a relief or exemption is claimed which reduces or extinguishes the liability.
Where a transaction involves the acquisition/disposal of various items, not all of which are chargeable interests in land, or where the transaction is part of a deal including other transactions then the consideration should be subject to a just and reasonable apportionment. The purchaser, who is solely responsible for the accuracy of the information contained in the land transaction return, is expected to reconsider this question before entering the consideration for the land transaction on the return.
The subject-matter of the charge includes anything forming part of the land as a matter of law, such as buildings and structures forming part of the land, and fixtures.
For an item to be regarded as a fixture or part of the land and therefore chargeable to tax, as opposed to a chattel which is not chargeable, it must be annexed to the property. The issue will then turn on the degree and purpose of the annexation, with emphasis being placed in many cases to purpose.
Where a purchaser agrees to buy a property for a price that includes an amount properly attributed to chattels that amount will not be charged to Stamp Duty Land Tax (SDLT). The purchaser is responsible for the accurate completion of their land transaction return, including the entry for the consideration of the land transaction at box 10 in form SDLT1.
By virtue of FA03/SCH4/PARA4 a just and reasonable apportionment is required where a price is paid partly for a land transaction and partly for a non-land transaction such as the purchase of chattels.
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.
HM Revenue & Customs has the right to make enquiries into the accuracy of a land transaction return. The apportionment of the purchase price may well be one aspect on which an enquiry may be opened. Similarly it is quite possible that they will also undertake enquiries into cases where a deduction has been made for chattels to confirm that those items properly fall within the definition of chattels.
HM Revenue & Customs is unable to provide a comprehensive list of items that are accepted as chattels or moveables. This is because each case must be considered on its own merits and because this is an area of the law that continues to evolve.
The following items are, however, confirmed as being assets that will normally be regarded as chattels:
carpets (fitted or otherwise), curtains and blinds, free standing furniture, kitchen white goods, electric and gas fires (provided that they can be removed by disconnection from the power supply without causing damage to the property) and light shades and fittings (unless recessed).
On the other hand, the following items will not normally be regarded as chattels:
fitted kitchen units, cupboards and sinks, agas and wall mounted ovens, fitted bathroom sanitary ware, central heating systems and intruder alarm systems.
Externally, any plants, shrubs or trees growing in the soil which forms part of the land, are not to be regarded as chattels. A deduction would, however, be appropriate for amounts properly apportioned to any plants growing in pots or containers.
The above guidance is written primarily in the context of sales of residential property.
Next steps
To look at further guidance on HMRC
Search topic
Stamp duty land tax
Keywords to search
Stamp duty land tax
Information source used
HMRC website- www.hmrc.gov.uk
Access points
Accessed www.hmrc.gov.uk
Clicked on ‘Individuals & Employees’
Clicked on ‘More topics’ under ‘Tell me about…’
Clicked on ‘Stamp Duty Land Tax’ under ‘Individuals & ‘Employees’
Date of search
8th November 2014
Evaluation of material
Located the following information:
Calculating the amount of the chargeable consideration
The amount of the chargeable consideration includes anything paid for assets that form part of the land or property.
These assets can include:
buildings and structures that are part of the land, such as farm buildings
fixtures and fittings, including bathroom and kitchen fittings, but not freestanding furniture, carpets or curtains
intangible assets, such as the value of goodwill attached to the land
Items not included in the chargeable consideration
When the purchase price includes a payment for items that are not part of the chargeable consideration, those items must be valued at a rate reflecting their fair market value. For example, if carpets are included in the sale of a flat, the purchaser and vendor must agree a fair price which reflects their age and quality. This is then subtracted from the price paid to find the chargeable consideration.
The portion of the purchase price allocated to such assets must be seen as fair and reasonable.
Calculating SDLT for leasehold properties
For leasehold land and property, SDLT is payable on both the purchase price and on any substantial annual rent. The two parts are calculated separately, and the rules vary for residential and non-residential leases.
SDLT for leasehold purchases
When someone buys a leasehold property, the Stamp Duty Land Tax (SDLT) they have to pay depends on whether it’s an existing lease or a new one.
Bear in mind that not claiming a relief where it’s due can be very costly for the buyer. Equally, claiming a relief when it’s not due could lead to a penalty being charged.
Next steps
Look at Conveyancing in Halsburys Laws of England
Search topic
Stamp duty land tax
Keywords to search
Stamp duty land tax
Information source used
Halsburys Laws of England volume 23, (2013) 5th edition, paragraphs 277-281
Access points
In the University Law Library I located Volume 23, 5th edition, 2013 which included Conveyancing
Using the Table of Contents at the front, I located Property Taxes and Duties which was part 15, page 196
I turned to page 196 and read from paragraph 277- 281
I used the Cumulative Supplement Part 2 2013 for 4th and 5th editions to ensure that no changes had been made to my source since publication (the Law Library did not contain the Cumulative Supplement for 2014 or the monthly Noter-Up booklet). I located volume 23, 5th edition and under Part 15. Property Taxes and Duties noted that there had been ‘No updating since publication of Volume 23 (2013)
I used the Current Services Noter-up Issue 486 for December 2013 to ensure that no changes had been made to my source since publication of the Cumulative Supplement until the end of 2013. I located Volume 23 (2013) and under Conveyancing there were no notes on paragraph 277-281
To double-check the accuracy of the source in the absence of the latest Cumulative Supplement and Noter-Up booklet, I checked the source on LexisNexis following the steps detailed below:
Accessed LexisNexis Library through the University library
On the homepage I clicked on Browse
Scrolled down to Conveyancing (Volume 23 (2013) 5th Edition) and clicked the + symbol to the right
Clicked on 15. Property Taxes and Duties
Viewed paragraph 277 and clicked next to view all paragraphs to 281 checking for any applicable updates or amendments
Date of search
11th November 2014
Evaluation of material
Found the following useful information:
277. Stamp Duty Land Tax (SDLT)
Penalties and interest are payable for late payment, and criminal penalties including imprisonment and fines exist for tax evasion and fraud. The investigation powers of Her Majesty’s Revenue and Customs last for a period of up to 21 years.
280. Land transaction returns
Every relevant notifiable transaction must be reported to Her Majesty’s Revenue and Customs and the details provided in standard form. A transaction may be notifiable even though no duty is payable.
281. Land Registry applications
No document relating to a notifiable land transaction may (unless exempt from certification) be registered at the Land Registry, recorded or reflected in an entry in the register without a certificate as to compliance with SDLT requirements
Next steps
To check all provisions in the main piece of Legislation (Finance Act 2003) relating to SDLT
Search topic
Finance Act 2003
Keywords to search
Finance Act 2003
Information source used
Westlaw Legislation
Access points
Accessed Westlaw through the University library.
Clicked on Legislation at top of page
Entered ‘Finance Act 2003’ in Act/SI Title box and clicked search
Clicked on arrangement of Act on ‘Finance Act 2003’, first option
Scrolled through Act to s76 and clicked
Noted Status- Law still in force
Date of search
11th November 2014
Evaluation of material
Looked at the following section of the Act:
S76 duty to deliver land transaction return in respect of notifiable transaction in 30 days from effective date of transaction. Noted Law in force.
S77 deals with notifiable transactions. Acquisition of major interest in land that is not an exemption is notifiable. Noted Law in force, amendments pending.
S79- Property will not be registered unless a certificate as to compliance with the requirements of SDLT is produced. Noted Law in force, amendments pending.
S85- The purchaser is liable to pay the tax in respect of a chargeable transaction. Noted Law in force.
S87- Interest is payable on the amount of any unpaid tax from the end of the period of 30 days after the relevant date until the tax is paid. Noted Law in force.
S88- A penalty under this Part shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date it is determined until payment. Noted Law in force
S95-
(1) A person commits an offence if he is knowingly concerned in the fraudulent evasion of tax by him or any other person.
(2) A person guilty of an offence under this section is liable—
(a) on summary conviction to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both;
(b) on conviction on indictment, to imprisonment for a term not exceeding seven years or a fine, or both. Noted Law in force.
Schedule 4 Stamp Duty Land Tax: Chargeable Consideration
Para 4. Just and reasonable apportionment
(1) For the purposes of this Part consideration attributable—
(a) to two or more land transactions, or
(b) in part to a land transaction and in part to another matter, or
(c) in part to matters making it chargeable consideration and in part to other matters,
shall be apportioned on a just and reasonable basis.
(2) If the consideration is not so apportioned, this Part has effect as if it had been so apportioned.
(3) For the purposes of this paragraph any consideration given for what is in substance one bargain shall be treated as attributable to all the elements of the bargain, even though—
(a) separate consideration is, or purports to be, given for different elements of the bargain, or
(b) there are, or purport to be, separate transactions in respect of different elements of the bargain. Noted Law in force.
Key cases citing:
Orsman v Revenue and Customs Commissioners
[2012] UKFTT 227 (TC); [2012] S.T.I. 1961 (FTT (Tax))
Schedule 6A Relief for certain acquisitions of residential property- Noted Law in force
Schedule 9 Para 1 Right to buy- Noted Law in force
Schedule 10 Para 9 Duty to keep and preserve records, para 11 Penalty for failure to keep and preserve records and para 12 HMRC can make an enquiry 9 months from filing date, date submitted or amended by giving notice –Noted Law in force
Next steps
To look at LexisNexis PSL Practice note headed ‘Land Transactions, chargeable interests and chargeable transactions
Search topics
Land Trasactions, chargeable interests and chargeable transactions
Keywords to search
Land Trasactions, chargeable interests and chargeable transactions
Information source used
LexisNexis Practice note headed Land Trasactions, chargeable interests and chargeable transactions
Access points
Accessed LexisNexis PSL through the University library
In the search box on the right-hand side I entered ‘land transactions, chargeable interests and chargeable transactions’
This search returned 1000 results. I clicked on the Practice note headed ‘Land Transactions, chargeable interest and chargeable transactions which was search result 1
Date of search
14th November 2014
Evaluation of material
Discovered following information of use to my research task:
SDLT is charged on chargeable land transactions.
A land transaction is defined as the acquisition of a chargeable interest
A chargeable interest is defined to include in FA 2003, s 48:
an estate, interest, right or power in or over land in the UK
Land for these purposes is defined as including buildings and structures. Any fixtures to the land in question are therefore considered to be part of the land for SDLT purposes.
Fittings and chattels do not form part of the land and consequently fall outside the scope of SDLT.
Next steps
To look at the Finance Act 2013 for the General Anti Abuse Rule
Search topics
General Anti Abuse Rule
Keywords to search
Finance Act 2013
Information source used
Finance Act 2013
Access points
Accessed Westlaw through the University library.
Clicked on Legislation at top of page
Entered ‘Finance Act 2013’ in Act/SI Title box and clicked search
Clicked on arrangement of Act on ‘Finance Act 2003’, first option
Scrolled through Act to s206-215 and Schedule 43 and clicked
Noted Status- Law still in force
Date of search
14th November 2014
Evaluation of material
Looked at the following provisions
Part 5
S206 General anti-abuse rule
(1)Purpose of counteracting tax advantages arising from tax arrangements that are abusive.
(3) The general anti-abuse rule applies to —
(f) stamp duty land tax
S207 Meaning of “tax arrangements” and “abusive”
(1) Arrangements are “tax arrangements” if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.
(2) Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances
which might indicate that tax arrangements are abusive
S208 Meaning of “tax advantage”
A “tax advantage”includes—
(a) relief or increased relief from tax,
(b) repayment or increased repayment of tax,
(c) avoidance or reduction of a charge to tax or an assessment to tax,
(d) avoidance of a possible assessment to tax,
(e) deferral of a payment of tax or advancement of a repayment of tax, and
(f) avoidance of an obligation to deduct or account for tax.
S209 Counteracting the tax advantages
(1) If there are tax arrangements that are abusive, the tax advantages that would arise from the arrangements are to be counteracted by the making of adjustments.
(2) The adjustments required to be made to counteract the tax advantages are such as are just and reasonable.
(3) The adjustments may be made in respect of the tax in question or any other tax to which the general anti-abuse rule applies.
S211 Proceedings before a court or tribunal
Schedule 43 Paragraphs 3- 13 dealing with procedural requirements
Next steps
Checked developments of devolution of SDLT to Wales
Search topics
Stamp Duty Land Tax
Keywords to search
Stamp Duty Land Tax
Information source used
Welsh Government Website
Access points
Accessed waes.gov.uk
In the search box on the top right-hand side I entered ‘Stamp Duty Land Tax’
This search revealed 17 results
Viewed each results but in particular focused on first result ‘Financial reform and tax policy’ which was last updated on 02 July 2014
Date of search
14th November 2014
Evaluation of material
Located the following information:
Funding arrangements for the Welsh Government are changing.
The UK Government published the Wales Bill on 20 March 2014. The purpose of the Bill is to devolve taxation and borrowing powers to the Welsh Government and National Assembly for Wales. This is as a result of the UK Government’s acceptance of the majority of recommendations published in the 1st Silk Commission report.
The Wales Bill aims to fully devolve:
Stamp duty land tax
Stamp duty land tax require the passage of the Wales Bill through the UK Parliament and have a target date of April 2018. From that date, UK versions of the taxes will be “turned off” and replacement Welsh taxes will come into effect.
Next steps
Check LexisPSL Updates: Property received via email weekly
Search topics
Keywords to search
Information source used
Lexis PSL Property updates. 03/10/14 15.
Access points
Checked weekly emails in University inbox received from LexisPSL for Property
Date of search
14th November 2014
Evaluation of material
Located the following in email received on 03/10/14 point 15 and clicked on link
15. Legal Ombudsman issues SDLT guidance
30/09/2014
The Legal Ombudsman has worked with the Solicitors Regulation Authority (SRA) to prepare guidance for those who use Stamp Duty Land Tax (SDLT) tax avoidance schemes. The SRA has also warned solicitors to carry out due diligence on suggested tax avoidance schemes to ensure clients are not exposed to any risk when entering into such schemes.
Summary
While there are legitimate ways for people to minimise their tax obligations, many so-called tax avoidance schemes do not deliver on their promises of tax savings and the Legal Ombudsman is currently investigating a number of complaints about SDLT avoidance or mitigation schemes.
Those using a SDLT tax avoidance scheme may find HMRC will challenge its validity and if successful, they may end up having to pay the tax due, plus interest, and a fine.
Guidance
Stamp duty
If a solicitor has taken money to pay stamp duty but the duty has not been paid, the client should complain to the solicitor in the first instance. If this first-tier complaint is unsuccessful, the Legal Ombudsman or the SRA can become involved.
HMRC
Anyone who has been advised by their lawyer to use a tax avoidance scheme but is being chased by HMRC for payments should complain to their lawyer in the first instance. If the issue can’t be resolved, and depending on the advice given by the lawyer, they may then complain to the Legal Ombudsman.
Firm closure
In the event of a firm being closed down by the SRA without returning the SDLT money, a client may be eligible to claim against the SRA Compensation Fund. They will need to provide the following documents:
• a copy of the completion statement for the purchase (or re-mortgage) and any related sale
• copies of bills, obtainable from the agent who closed the firm
• a copy of the account sheet relating to the purchase (and sale if this applies), obtainable from the agent who closed the firm
• evidence—such as a bank statement or receipt—the client’s legal adviser received the amounts shown in the completion statement
Next steps
To look at cases revealed from research
Search topics
Stamp duty land tax
Keywords to search
Parties names to cases
Information source used
Westlaw Cases
Access points
Accessed Westlaw through the University library.
Clicked on Cases at top of page
Entered separately the following in Parties Names box and clicked search: Holland v Hodgson, Berkley v Poulett, Botham v TSB Bank plc and Orsman v Revenue and Customs Commissioners
For Holland v Hodgson clicked citation: (1871-72) L.R. 7 C.P. 328 and viewed Case Analysis. Noted Status- Positive or Neutral Judicial Treatment.
For Berkley v Poulett clicked on Case Analysis. Noted Status- Positive or Neutral Judicial Treatment
For Botham v TSB Bank plc clicked citation: (1997) 73 P. & C.R. D1 and also viewed Case Analysis
For Orsman v The Commission for Her Majesty’s Revenue and Customs clicked on Case Analysis and Official Transcript
Date of search
16th November 2014
Evaluation of material
Found information which supplemented details of the cases which had been discovered in earlier research
Next steps
End
Bibliography
Legislation
Finance Act 2003
Finance Act 2012
Finance Act 2013
Case Law
Orsman v The Commission for Her Majesty’s Revenue and Customs [2012] UKFTT 227 (TC)
Holland v Hodgson (1871-72) L.R. 7 C.P. 328
Berkley v Poulett [1977] 1 E.G.L.R. 86
Botham v TSB (1997) 73 P. & C.R. D1
Texts
Halsbury’s Laws of England (2013) Consolidated Index P-Z
Halsbury’s Laws of England (5th edn, 2012) vol 96, para 425-600
Halsbury’s Laws of England (4th and 5th edn, 2013) Cumulative Supplement Part 2
Halsbury’s Laws of England (December 2013) Current Services Noter-up Issue 486
Halsbury’s Laws of England (5th edn, 2013) vol 23, para 277-281
Lexis Nexis PSL Practice Notes:
SDLT- chargeable consideration
SDLT- rates of SDLT
Land Transactions, chargeable interests and chargeable transactions
Guidance Notes
Stamp Duty Land Tax Manual
Financial reform and tax policy (Last updated 02 July 14)