A potential timebomb has been lobbed by the taxman into the burgeoning Sale by Tender market where the buyer pays the fee, typically 2%.
An HMRC officer told a purchaser in writing on September 5 that the fee counts as part of the purchase price and is therefore subject to the Stamp Duty Land Tax regime.
Arun Estates – the agent in this case – is playing the issue down and says this particular matter has been resolved.
However, if the HMRC’s stance as expressed in the very recent letter proves to be, or becomes, policy, it could have huge implications for purchasers paying agents in Sale by Tender deals.
Hundreds of deals have gone through at just under the various Stamp Duty Land Tax thresholds.
A deal might be done at £249,000, but adding in the buyer’s 2% fee would push the price over the first Stamp Duty threshold, meaning that the purchaser is hit with an unexpected bill for thousands – and may struggle to find the funds for it: 2% of £249,000 is £4,980 which would make the total paid by the purchasere £253,980. If HMRC insists that is the price paid by the purchaser for the property, that would mean the buyer would have to pay 3% Stamp Duty Land Tax, which is £7,619.40.
Agents who have gone into the For Sale by Tender sector generally advise that the fee is not part of the purchase price.
In an interview with Eye in April, Arun Estates group managing director David Lench said of Sale by Tender: “We have had some issues with it, notably Stamp Duty. We had buyers’ solicitors questioning whether by the time you added 2% back in on to a £249,000 purchase, it took the price into the next Stamp Duty level. However, we have now had a letter from HMRC confirming that this is not the case.”
Arun Estates said at the time that four in ten sellers were choosing the Sale by Tender process.
Other agents active in the sector include Spicerhaart and a number of independents.
Eye has seen the letter sent ten days ago by a member of HMRC’s Stamp Duty Land Tax team.
The letter makes it plain that the 2% fee paid by an Arun Estates buyer is part of the price for Stamp Duty Land Tax purposes.
The letter says:
Dear Sir
Re Estate Agents fees
Schedule 4 Finance Act 2003 determines the chargeable consideration for a land transaction for the purposes of stamp duty land tax. Generally it is whatever is given in money or money’s worth to acquire the property directly or indirectly by the purchaser.
Whether an introduction fee or any other fee is chargeable consideration depends on whether it is given for the land transaction or for another matter.
If under the terms of a contract the purchaser has an obligation to give the purchase price plus a fee in order to acquire the property, in these circumstances the fee is given for the property and total amount is chargeable consideration for the land transaction.
Where the transfer of the property is not dependent on the payment of the fee then it is not treated as chargeable considerable because it is not given for the land transaction.
I note that the copy of an email received from Arun Estates states that “99% do pay in order to secure the property”. It goes on to say if the buyer is not willing to pay, the vendor may revert to selling the property by a private treaty sale. If this means that the vendor would not sell the property unless the purchaser agreed to pay the introduction fee, in my opinion the transfer of the property is dependent on the payment of the fee.
It is my understanding that my colleague has written directly to Arun Estates to give HMRC’s view on the treatment of introduction fees for the purposes of stamp duty land tax.
Eye invited Arun Estates to comment.
A spokesperson said: “Arun were in contact with HMRC very recently with regard to a specific and unique case where the terminology used by the solicitor involved and our member of staff had resulted in some confusion which was quickly resolved.
“HMRC have confirmed to us on more than one occasion that SDLT is not chargeable on our introduction fee for SBT transactions as it is not included in the contract for sale and does not therefore affect whether the transaction completes or not.
“Similarly to private treaty sales, our SBT introduction fee is normally settled by the (buyer’s) solicitor shortly after completion has taken place.
“It is agreed by separate contractual arrangement between us and the buyer, therefore any failure on the buyer’s part to settle the fee can be dealt with after completion takes place in the same manner that any failure on a seller’s part to pay their agency fee would be dealt with in private treaty sales.
“I am sure that TPOS and NAEA would be the first bodies to be made aware of any change in HMRC’s stance and would advise their members accordingly so that we can continue to provide accurate and responsible advice to our customers.
“To date there has been no such change in stance communicated and significant numbers of SBT transactions continue to successfully complete with no SDLT being charged on our introduction fee.”
* HMRC has a habit of making individual cases tests to determine overall policy. For example, last year it successfully won a test case on tax reliefs for furnished holiday lets, changing the rules overall.
Comments (16)
I agree with the point that messing around near the stamp duty figure is ill advised. The majority of cases, when it comes to ARUN, however, I would suggest are below this threshold. Whilst the figures in those instances will be negligible, its still the taxman's money and if they get on the trail, I would not want to be Arun, the purchasers or solicitors acting…can you imagine the potential PR nightmare!
I don't believe their figures of 4 in 10 transactions as we operate within their areas. We now have applicants openly saying they will not register/look via Arun or view any property offered on the same basis, as a result of this policy and many vendors are openly critical of it. For us, its actually been an instruction winner and is widely criticised.
I think we need to remember that this is NOT 'sale by informal tender' which has now been tainted – it's a means of securing instructions by undercutting agents who charge in the normal manner – nothing more. There is NO benefit to the vendor other than reducing their liability for fees – though the buyer will of course factor this into their offer. The headline "Sell your home for £150 plus VAT" is very tempting. Buyers may now discover that not only did that have to pay a large commission, my may get a huge bill for SDLT. If HMRC decide to focus on this, there may be some very large PI claims.
Perhaps someone should actually ask HMRC for their official response to this story. Then we'd know.
This story IS based on their response …unless I'm missing something?
I think you ARE missing something. This story is based on a single letter written in relation to a single case out of hundreds. We do not know the specifics of that particular case. Therefore, while it's very gratifying to indulge in a little idle speculation as to what this might mean if applied universally, I still think that asking the people best-placed to know what HMRC think – ie HMRC themselves – for their take on it would have made sense. If they confirm the view expressed in the letter, then fair enough. If not, then all we have is one tax bod expressing his or her personal opinion about one case.
"If this means that the vendor would not sell the property unless the purchaser agreed to pay the introduction fee, in my opinion the transfer of the property is dependent on the payment of the fee."….See where you are coming from as this appears to be an opinion…
"It is my understanding that my colleague has written directly to Arun Estates to give HMRC’s view on the treatment of introduction fees for the purposes of stamp duty land tax."
Perhaps we need to see this clarification letter as no opinions seem to be in that?…Reading between the lines it seems that the "collegue" who wrote to arun may have been senior at HMRC….I think that someone like Ros (in the absence of the NAEA acting any time soon) should press the HMRC for their definitive take on it from a senior level as she has this letter….I think that should then give the public, the industry, agents and solicitors a clear understanding of where the line is drawn.
Precisely. While commercial confidentiality concerns might understandably make Arun reluctant to publish the guidance they received, it would help everyone to hear from HMRC direct as to whether the views expressed in this letter reflect their official take on all SBT transactions, or just this one. And why!
Surely with this new information ANY agent that has taken part in a "for sale by tender" now has a duty of care to inform all their purchasers/sellers that are selling/or have already sold and completed via this route will be liable to pay the extra stamp duty, whether it is a few £100 if below a certain threshold or a few £1000 if the fee plus sale price bridges a threshold. This seems to me to be the start of the end for this type of practise…Ros…please try and keep a grip on this one which shouldn't be allowed to peater out. The NAEA and TPOS also need to react to these new findings and issue a firm stance on it. Otherwise the public will continue to be mislead and it now looks like they will be hit in the pocket as well!
Am I missing something? It seems simple to me – the CLIENT (ie the owner) pays our fees. No issues then.
I thought everyone new this …… HMRC had always made it clear about fiddling the price etc around the stamp duty to avoid tax, just like agents should with the 1991 Practice Orders but then pigs do fly!
There is no doubt in this at all such payments are taxable and it is absurd that it is the agents that write to HMRC – not the solicitors who should be competent to advise on this. This is SDLT (its NOT the same as 'Stamp Duty', and hasn't been for over 10 years) and it is chargeable on any consideration paid in connection with the transaction, whatever you call it, a fee or otherwise, whether it is in the contract or transfer or in a brown paper bag in cash, and whether it is paid before or after the transaction. I have been lecturing on SDLT for the last 10 years and it is staggering how many conveyancers fail to understand this is a self assessed tax now and has to be treated differently. Read my Article in the Estates Gazette on 9th August and go to my website http://www.propertylaw.guru and download some client guides! The solicitors are negligent if they don't advise correctly and will be picking up the tax and penalties of up to 100%. It is a tax on transactions not a duty on documents. It doesn't matter how you structure it, payment before or after, if it is part of the 'deal' it is consideration and the tax payer and the solicitor are party to tax fraud if they don't include it in the consideration. Its just like Income Tax, VAT and CGT now. It actually is something that should be reported to Money Laundering Officers at solicitors firms as it is actually criminal property! There is no 'change in HMRC stance', it always has been chargeable, its only that as it is a self assessed tax it is up to the taxpayer and their advisers to get it right, which they haven't been doing, and it is up to HMRC to investigate, which up to now they haven't been. But they can go back up to 6 or even 20 years if they want…
Why don't solicitors advise their clients that tender is only legal if the correct amount of stamp duty is payable ie the fee and the purchase price? Surely the law society or conveyancers association have issued their members with a clear guide on this?
Because sadly, very few solicitors have ever taken the trouble to learn about the tax – they still think that stamp duty principles apply. One in-house counsel told me that 75% of the SDLT returns submitted by her external lawyers (top firms too) were wrong. The Law Society and others have tried to tell them but they won't listen because it would be inconvenient and take too much time to do it properly. No accountant would treat tax returns in such a cavalier manner
Really interesting stuff……and there's me thinking that solicitors/conveyancers were professionals. To a certain extent you can understand if they made the occasional conveyancing mistake as every property is different. Client tax liabilities or any tax liabilities relating to a property transaction remain the same every time(subject to the occasional change from government).
I've had repeated experience in recent years with every solicitor I've used quoting completely out of date Law Enforcement agency names – in their Client Care letters, including: a) FSA instead of FCA, b) Inland Revenue instead of HMRC [H M Revenue & Customs], c) NCIS [National Criminal Intelligence Service] or SOCA [Serious Organised Crime Agency] – instead of NCA [National Crime Agency]. And one criticised me for changing it in pencil, instead of accepting their error!
I think this is an interesting issue. Relocation & search agents charge a fee to buyers for a specific service – i.e to find a property. Forget the term informal tender as this term has been hijacked as we have been using 'sealed bids' for years very effectively. The key to this model isn't the inherent benefits of 'informal tender', (i.e ensuring the best price has been achieved transparently and within a specific time frame), it's a method of securing instructions by negating a commission. "Sell your home for £300" is a lure and the vendor benefits by not paying commission and as such, one could argue, receives more net proceeds. Whether this is seen as part of the transaction is for a test case. I believe the key lies in what service does to the agent offer a buyer for the fee they are charged? They aren't offering a search service, rather they reply upon the buyer responding to an advertisement and then simply informing them of their requirement to pay a predetermined fee in order to proceed. It may not be part of the transaction value, but could it be construed in the way 'benefit in kind' rules are applied.