In the biggest announcement concerning Stamp Duty Land Tax since George Osborne’s well received reforms in late 2014, Her Majesty’s Revenue & Customs has released important new guidance to address a growing concern: payments made by purchasers in a property transaction which may have significant Stamp duty consequences.
It has long been the case that purchasers are tempted to try to avoid SDLT by making ancillary payments. These are separate to the purchase price, and made to the seller, estate agents or other third parties. The long-held view amongst many in the property industry, that these payments do not attract additional Stamp duty, has now been clearly rejected by HMRC. In an effort to curb such practices, and to prevent some purchasers unknowingly defrauding HMRC, the new guidance provides the first clear examples of what may, or may not, be considered “Chargeable Consideration” (that is, a payment subject to SDLT).
If you are asked to pay any of the following, you should seek specific advice from us before agreeing:-
1. Sale by Tender Fees
A recent trend among some estate agent chains has been to promote “Sale by Tender marketing”. This means bids are submitted in the same fashion as the traditional marketing approach, but the buyers pay a substantial commission to the estate agents for processing the bid. The seller will then pay a much smaller “listing fee” for simply advertising the property.
HMRC have confirmed any payment made to the estate agent as a Sale by Tender fee is chargeable consideration and therefore subject to SDLT. The buyer, therefore, not only pays the estate agent’s commission but also extra Stamp Duty on top.
For example, if you purchase a property for £450,000:-
2. Seller’s Estate Agent Fees
Perhaps the oldest trick in the book: the practice of making the purchaser pay the seller’s estate agent fees, reducing the sale price by a corresponding sum, and thereby intending to reduce the amount on which SDLT is paid, has come up time and again. However, HMRC have confirmed that any estate agent fees (or, for that matter, any other fees the purchaser pays on the seller’s behalf), form part of the chargeable consideration and will be subject to SDLT. The net effect: this device has no effect at all on the total SDLT paid.
3. Estate Agent “Introduction” Fees
Similar to the Sale by Tender scenario above, if your bid will only be accepted on the basis that you pay a one off fee to the estate agent for introducing you, that fee must be included in the assessment for SDLT.
4. Auction Fees
There is a distinction to be drawn here. Fees payable by the purchaser to the auction house are not subject to SDLT. However, if you are then asked to pay the seller’s auction house fees, this element will be subject to SDLT. We strongly advise you to show us the auction terms before committing so that we may advise you on the full extent of SDLT due.
If you need help understanding your SDLT liability on any property transaction, speak to us. Generally, solicitors only provide tax advice where related to an ongoing legal matter and of a general nature. However, Stamp Duty Land Tax is one particular area where we can offer detailed advice because it is central to the property transactions we act on.