Amidst the recent surge in interest rates and the ongoing challenges posed by rising costs-of-living, many people are looking for clever ways to save money when buying or selling a house, especially when it comes to reducing Stamp Duty Land Tax (SDLT) liability.
One strategy which has brought quite a bit of attention recently involves allocating a portion of the agreed price as payment for ‘chattels’.
However, first of all...what on earth are chattels?
And secondly, what are the potential risks of doing this?
In this article, we’re going to take a deeper look at this strategy in the conveyancing process while helping you get a clear understanding of what chattels actually are and how they are different from fixtures - if indeed they are at all...
What is a fixture?
A fixture is an item attached to the property itself. Common examples in UK houses include fitted kitchen units, cupboards, sinks, fitted bathroom sanitary ware (toilets!), central heating systems, burglar alarms, and even plants, shrubs and trees. Essentially, anything that would likely be too inconvenient or difficult to take out when the owners leave.
Payment for fixtures sometimes falls under the scope of Stamp Duty Land Tax. When HMRC is figuring out whether something is a fixture that should be considered part of the property for tax purposes, they use a test that looks at two things:
How much the thing is attached to the property and
Why it’s there
Imagine you have a super cool built-in kitchen with all the bells and whistles. If it’s bolted in and designed to stay there (which you probably hope it is), that’s classed as a ‘high degree of annexation.’ And if the reason it’s there is because it’s meant to be part of the house, like a permanent kitchen, then that’s the purpose.
In a nutshell, when it comes to fixtures HMRC checks how much it’s stuck to the property and why it’s there to decide if it should be considered part of the house for SDLT purposes.
What is a chattel?
A chattel is any separate item that isn’t part of the land or house itself. We’re talking curtains, free-standing furniture, house plants in pot, etc. When it comes to Stamp Duty Land Tax, chattels aren’t included in the calculation.
Which leads us back to the strategy we mentioned earlier in this article, where buyer’s allocate a portion of the sale price to the purchase of chattels.
Can you allocate a portion of a house price as payment for ‘chattels’?
You can do this, but there a some considerations to take into account.
When it comes to allocating a portion of the agreed price of buying a house as payment for chattels, you can’t just say, “Hey, I’ll pay a ton for these awesome curtains.”
Instead, you can only subtract the fair value of the chattels from the total price, and it has to be done in a fair and reasonable way.
So, if you’re thinking of paying extra for a seller’s stuff, hold up. You’ll need to make a detailed list of what’s included first, and both parties should agree to it. It’s also a good idea to have some proof, like checking how much similar second-hand stuff goes for to make sure the value is accurate.
For really special things, like fancy artwork, it’s a smart move to get a professional to value it. This way, you’ll stay on the right side of the tax game.
Buyer beware: SDLT risks and consequences
When you submit a return for Stamp Duty Land Tax, you’ve got to fill out the form accurately. It’s all on you to make sure everything adds up, especially if you’re setting aside some of the purchase price for those chattels we mentioned.
HMRC can and may double check your Stamp Duty Land Tax return. They have the right to investigate and make sure everything is as it should be. And if they find out that you’ve said the curtains are worth a million pounds when they are worth considerably less...it could lead to serious consequences like getting in trouble with the law and rendering the contract between buyer and seller basically useless.
Tips if you’re looking to buy items from a seller in a house purchase
If you’re looking to buy specific items (chattels) from a seller as part of house purchase you should:
Create a detailed list of the items you’re interested in buying;
Make sure both you and the seller agree on the list of items and their fair value;
Be reasonable when assigning values to the items;
Research and gather comparable evidence of the going rates for similar second hand goods;
If dealing with unique or high-value items, consider getting a professional valuation;
If the transaction involves significant items or is complex, consider seeking advice from a conveyancer or property solicitor;
Remember, when setting aside part of the purchase price for items, it must be done on a ‘just and reasonable’ basis.
For more help and information on buying a house, check out our top tips for buying a house.
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