Using Chattels to Avoid Stamp Duty
Chattels are items, such as items of furniture, which do not form part of the fabric of the land or buildings but which are transferred from the seller to the buyer along with the land as part of a conveyancing transaction. They can either be including in the price paid for the property or sold for an additional price but using the same contract as is used for the land.
A fixtures, fittings and contents form should be annexed to the contract upon exchange which should list all of the items in the property and indicate whether they are included in the sale, whether they are excluded or whether they are offered for sale for an additional sum.
Stamp Duty Land Tax Bands
First of all, it’s worth just clarifying what the tax bands are. Note that this information is accurate at the time of writing (27.09.2010) but you should check the up to date position with HMRC. The rate and amount of tax payable is dependent on the consideration and by consideration we mean the amount paid in money or money’s worth (which can include the assumption of responsibility for a debt or land given in exchange) by the incoming owner for the land.
| Consideration (£) | % Rate |
| 0 – 125,000 | 0* |
| >125,000 | 1 |
| >250,000 | 3 |
| >500,000 | 4 |
| >1,000,000 | 5** |
* For homes in disadvantaged areas the 0% band is extended to £150,000
** 5% rate commences 06.04.2011
How Can Chattels Be Used to Reduce Stamp Duty Liability?
Stamp duty land tax is, as the name implies, a tax on land transactions. It is not a tax on personal property. Personal property is the legal term used to describe property other than land or intangible items such as a patent or copyright. Personal property therefore includes items of furniture, carpets and curtains etc. For the remainder of this article we will refer to land as “property” and personal property as “chattels”.
It often happens that when a property is sold a number of chattels are included in the sale, for no extra premium. This can be looked at two ways, you might say that the price paid by the buyer is paid only for the property and the chattels are a gift or you might say that part of the purchase price is paid to acquire the property and part to acquire the chattels. Often the argument is considered irrelevant and is never resolved however the distinction can be very important, as the following examples show.
Example 1 – Use of Chattels to Reduce Stamp Duty Liability
Bill wants to buy 1 Nowhere Street from Ben. After viewing the property Bill offers Ben £124,000, which is £2,000 below the asking price. Ben advises he cannot accept less than the asking price of £126,000 but if Ben will pay this Bill will throw in all of the white goods and the bedroom furniture, as he won’t need these in his new property. Ben agrees as the items are easily worth £2,000 and they both instruct solicitors.
Ben’s solicitor sees the fixtures, fittings and contents form and asks him whether he has agreed to pay extra for the items which are included in the sale. Ben recalls his conversation with Bill. Ben’s solicitor points out that what is really happening is that Ben is paying £124,000 for the property and a further £2,000 for the chattels and that by expressing it this way in the contract and by entering a price of £124,000 in the transfer deed (which relates only to the transfer of the property as the chattels do not need to be transferred by deed), he will save £1,260 in stamp duty which he shouldn’t be paying. This is because if the extra £2,000 is added to the price paid for the property it will take the total consideration on which the stamp duty calculation is based to £126,000 which is over the £125,000 threshold below which no tax is payable.
On Ben’s instructions his solicitor discussing this with Bill’s solicitor and it is agreed that the purchase price for the property will be recorded as £124,000 with a further £2,000 payable for chattels.
Example 2 – Failure to Treat the Chattels Price Separately From The Land
Tom agrees to purchase 999 Letsby Avenue from Jerry for £251,000 and the sale is to include various chattels, most of which have only nominal value but amongst which is an antique Welsh dresser worth around £2,000.
The purchase entered into the transfer deed, which is the price on which stamp duty is assessed, is £251,000. As this is over the £250,000 threshold Tom pays 3% which equates to £7,530. If the chattels had been treated separately then the price for the property could have been reduced by at least £2,000 (the price of the dresser) and Tom would have paid duty at the rate of just 1%.
What Items Qualify as Chattels?
When it comes to land transactions there are two types of personal property, fixtures and fittings. Fixtures form part of the land and for stamp duty purposes any amount paid for these items must be included in the price paid for the land and so be liable for duty. Fittings do not form part of the land and the amount paid for them should not be taken into consideration when assessing the duty payable on a transaction. These items can be considered chattels for stamp duty purposes.
There are several tests designed to establish what is a fixture and what is a fitting arising out of numerous cases and the issue is too big to go into full here, but generally it comes down to common sense. For example a house built on the land is clearly a fixture whereas a pile of bricks being stored on the land is a fitting. It is important not to treat fixtures as chattels so as to artificially reduce the price paid for the property as this could be treated by HMRC as tax evasion, which is obviously a serious offence. There will be some grey areas, but to stay on the safe side only items which would normally be removed by a seller should be considered chattels (though it is probably acceptable to include carpets). One thing that seems to crop up often is the central heating system, i.e. the boiler and radiators. In reality this is probably a fixture.
Assessing the Value of a Chattel
The value attributable to a chattel should be its open market value as at the time of the sale and not its value when new or the cost of a replacement. Many items reduce very significantly in value when second hand; particularly where they are designed to fit a particular space or they are not normally sold individually. Take a central heating system for example. We have already mentioned that in reality it is probably a fixture anyway but if treated as a fitting it must valued on the basis of what it would fetch if the individual elements were removed and sold. Probably the only interested purchasers would be central heating suppliers who would buy them as spares at fraction of the price the system would have cost to install.
Where it proves difficult to assess the value of a particular item or a number of items it is worth considering contacting a local auction house and asking them to carry out a valuation. There may be a fee payable but it will give some kind of defence should any queries be raised by HMRC as to the value of the items after completion.
Circumstances Where Chattels Cannot Be Purchased Separately From The Land
Chattels can only be purchased separately where they are actually the property of the seller and where they are genuinely included in the sale. It would not be permissible for example to “pay” part of the total price for chattels but then immediately gift them to seller. Items which are on a hire purchase agreement cannot be included and when buying from a mortgagee in possession (who will not own any of the chattels that may be left in the property) no items can be included.
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