The case of Gill Orsman –v- HMRC has dealt with the important question of apportionment of the money being paid by a buyer between the property itself and the contents.
The background to the matter is that the stamp duty rate payable when a buyer pays £250,000 for a house is 1% whereas if they are just £1 more then the relevant rate is 3%.
In the case of Gill Orsman –v- HMRC the buyer bought a house for £250,000 and paid the seller a further £8,000 for the “fixtures and fittings”. This is quite a common thing for buyers to do whenever they are purchasing a property around a relevant stamp duty threshold. Prudent solicitors always advise buyers to ensure that they get accurate valuations done for the contents that they are buying so that they can prove to the tax office, if necessary, that they have paid a genuine price for the contents and not an inflated sum in an attempt to avoid stamp duty.
The warning for buyers comes that in the Gill Orsman case the tax office noted that one of the items bought by the buyer was the “built-in fitted units with work top for £800”. The tax office claimed, successfully, that these units were fixed to the property and therefore part of the property and not separate contents that could be bought separately. As a result, the £800 paid for these fitted units were added to the purchase price for tax purposes, meaning that the total paid for the property was deemed to be £250,800 and a further £5,024 tax was owing.
The lesson for buyers out of this is to make sure that, not only do they have proper valuations done for any additional contents they are paying, but also to make absolutely certain that these contents are not deemed to be fixtures.
One good bit of news for buyers arising of this case was that the judge did say that it can be reasonable for a buyer to pay more than the market value of a non-fixed item. For example, if the actual market value of the carpets they were buying was only £1,000, then they could pay a little bit more than that in order to take into account the cost and hassle to them in having to replace that carpet.
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