Is SDLT payable on the value of the property in the sale agreement or the higher value shown on the accounts?

Home Forums Patrick Cannon Is SDLT payable on the value of the property in the sale agreement or the higher value shown on the accounts?

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  • #503 Reply
    Ed
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    I am about to advise a new client on capital allowances on a property but my query relates to a variation of the allocation of consideration, part of which is subject to SDLT. The SPA allocated the purchase consideration as to Goodwill ?1m, Property ?0.3k. It appears the SDLT return was completed showing the ?0.3k figure. The first set of accounts now show Goodwill ?0.7m, Property ?0.6m, the reason given to me as being that the purchaser now thought the Goodwill figure was too high. The 9 month enquiry window for SDLT returns expired end of 2009. What is the SDLT implication now that the accounts show a substantially higher figure for the property? Anything else that should be considered? Many thanks.

    #504 Reply
    Patrick
    Guest

    Without knowing more about the background to this change it is difficult to say whether or not the SDLT was underpaid. Assuming that the sale was at arm’s length and based on a genuine and supportable view of the values of the land and goodwill then it could be argued that the subsequent reduction in the value of the goodwill was a separate matter and did not affect the actual apportionment of the price under the sale agreement. Of course HMRC might not agree with this and they have 6 years in which to make a discovery assessment if this comes to their attention. It sounds like the new penalty regime for careless inaccuracy will not apply here if the transaction was before 1 April 2010 but a penalty for becoming aware that the return understated the tax and failing to alert HMRC to this could appy IF the return did indeed understate the tax, were HMRC later to pick this up.

    #505 Reply
    Ed
    Guest

    Thank you, Patrick. The transaction was before April 2010. I haven’t yet received the evidence regarding the goodwill / land values so have yet to ascertain whether there was a supportable view.

    The subsequent reduction in the value of goodwill is one matter; it is the increase in the land value in the accounts that raises a worry for me. If the purchaser took the subsequent view that the goodwill value was too high then an impairment charge could have been made, effectively writing off part of the cost of purchase.

    I presume that if there is insufficient evidence to support the land value, and the SDLT return position is not rectified, then there may be reporting obligations under the ML Regulations?

    #506 Reply
    Patrick
    Guest

    I see. On the money laundering side an obligation could arise but only if the original return was fraudulent so that the money thereby saved in tax became criminal property. An honest mistake over the valuations which was subsequently corrected in the accounts would not in my view create a ML reporting obligation even though separately a tax penalty was possible under the SDLT legislation for not correcting a return subsequently found to have been incorrect as that is a civil matter and not criminal. The right thing to do in such a case would be for the client to inform HMRC and pay that additional tax and interest but that is for the client to decide and he may decide not to and risk a penalty. As a professional matter you may then ask yourself whether you could continue to act in such a case. However you may take the view that as long as there was no dishonesty so that the matter is not criminal then it is legitimate for the client to decide to do nothing as it is a civil and not a criminal matter. His deciding to do nothing should not then prevent you continuing to act. I am assuming however that you would not have counselled him not to report and pay as this could put you in an awkward position. This is all dependent of course on the nature of the original acts and if there was no dishonesty in completing and filing the return then it is a civil matter only.

    #507 Reply
    Ed
    Guest

    Thank you very much, Patrick. I appreciate your answers. I will of course take a view as to what to advise the client if/when I get further information regarding the basis of the original valuation but at present I am not in a position to decide one way or the other on the reporting matter.

    #508 Reply
    Ed
    Guest

    Following discussions with the client’s accountants, it appears the client is considering amending the SLDT Return. However, the para 6 (FA03, Sch 10) time limit for amendment has passed (the effective date was March 09) so if the client is to pay the additional SDLT is it as simple as writing to HMRC to explain the situation and to pay the tax? (I have now seen a third party property valuation that lends support to the higher property value as stated in my OP.)

    #509 Reply
    Patrick
    Guest

    Yes. The situation doesn’t arise that often!

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