The First-tier tribunal decision in the case of Gill Orsman (TC 01921, published on 12 April) demonstrates both the capricious workings of an SDLT ‘cliff edge’ regime and HMRC’s tenacity.
Miss Orsman purchased a house in 2010 for £258,000. The purchase agreement attributed £250,000 to the value of the land, and £8,000 to chattels. On that basis Miss Orsman declared SDLT at 1% - £2500.
HMRC enquired into the return and Miss Orsman provided an itemised list (with values) of all the chattels. HMRC identified three which they considered not to be chattels:
- the fitted units and worktop in the garage,
- the electric oven and hob,
- the three semi fitted wardrobes
They argued that £5,500 would be a more accurate figure for chattels.
Miss Orsman wrote to confirm that the semi fitted wardrobes, although heavy, could be moved. HMRC accepted that they too were chattels. Miss Orsman persevered, and HMRC accepted that the electric oven and hob were also chattels.
HMRC wouldn’t budge on the fitted units and worktop in the garage. These, they maintained, were not chattels, they were part of the land and their value was £800. The total value of the land was therefore £250,800 and SDLT was therefore chargeable at 3% not 1%. The additional £800 of value increased the SDLT bill from £2500 to £7,524 (i.e. an extract £24 in relation to the additional £800 and an extra £5000 in relation to the original £250,000!).
Miss Orsman appealed but the tribunal found that…
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.
…and that on this basis they weren’t chattels. The SDLT bill stood.
The tribunal analysed all the issues in this case carefully and methodically. It is worth reading as a very clear summary of how the principles of SDLT are to be applied in practice. The tribunal was also clear that it was not going to be drawn into a discussion of the ‘fairness’ of the eventual position for Miss Orsman, so that when, for example, it was pointed out that the SDLT rate jumps from 1% to 3% (with no intervening 2% rate), the tribunal stated that:
These features…are what Parliament has decreed. We have no ability to ameliorate or alter them.
The practice of allocating a purchase price between land and chattels is, of course, commonplace and perfectly proper. The moral of this particularly case is that when you are relying on your chattels valuation to keep you beneath an SDLT threshold, you need to be make very sure that your chattels are really chattels.
In Miss Orsman’s case, because her initial value for the land was right on the limit of the 1% rate, HMRC knew that if they could identify just £1 of incorrectly identified chattels, they would pocket an additional £5000 in SDLT. It had to be worth an enquiry and they were even able to be magnanimous about the cupboards and the cooker! A salutary tale.