Page 1

HOOPER & WOLLEN Michael Jackson’s white glove – and how to reduce the tax on your house purchase By Kevin Craner of Hooper & Wollen solicitors THE PLAN An investor is talking to his business partner: That ‘little plan’ I mentioned, you remember the one. Well, I’ve done the math and I’m definitely on to something. And I’m talking big bucks for both of us. Even better, it’ll be easy big bucks. We could pocket tens of thousands! Here’s my brainwave. I was watching a news report about the sale of Jacko’s white glove – oh come on, keep up, the singer Michael Jackson. Anyway, it was just a glove. But, and this is the good bit, it sold for $350,000. Can you believe it? Now the point is this: stuff is worth what people will pay for it – a fool and his money and all that. This investment deal of ours – the farmhouse with a tennis court, a paddock. A lawn the size of a dozen football pitches – it needs a swimming pool, yes? Here’s how we get the pool FOR FREE. We’re paying 800K for the farmhouse, and that means a whopping tax bill of 32K! But if we were to purchase the farmhouse for 125K, then there’s no tax to pay if a property costs 125K or less. We’ll agree with the seller that we’re only paying 125K for the farmhouse and that the remaining 675K is for items such as the carpets and the blinds and the curtains. Granted, those things aren’t worth what we’re paying for them, but that doesn’t matter – it’s the white-glove principle at work. So, are you in? Good. Now let’s pick our pool… THE LAW An ingenious plan, but is it a lawful plan? Well the first part is. If you are purchasing a property that includes items such as carpets, blinds, and curtains, then the items’ price is not part of the property’s price. And because tax is only payable on the property’s price, you save money. So by paying for the carpets separately, you reduce your tax bill. However, the second part of the plan – the optimistic white-glove principle – is unlawful: the items’ price must be reasonable.

WHAT ARE YOU ALLOWED TO PURCHASE SEPARATELY? You can’t just purchase anything separately. There are limits. For example, if you purchased a house for £300,000, you can’t say to the Inland Revenue: “Hey, I only paid £250,000 for that house—the other £50,000 was for the roof.” To get an idea as to what you can sell, imagine arriving at your newly purchased home, opening the front door, and realising

were all items that the Inland Revenue says you can sell – items that are easily removed and therefore do not form part of the land. Such items are known as chattels. The listed items that were not stolen are items that the Inland Revenue says you cannot sell – items that are too fixed to the property to sell on their own. Such items are known as fixtures. You can sell a chattel but not a fixture. That’s why you can’t sell the roof separately. HOW MUCH? The items’ price must be ‘just and reasonable’. It is, therefore, sensible to obtain a valuation from an expert. There are two reasons for this. First, the Inland Revenue may, at a later date, carry out an investigation. Unless you’re an expert on the value of second-hand goods, you’ll struggle to argue that your calculation was anything other than a guess. Second, the solicitors dealing with the transaction may face disciplinary actions if they do not ensure that the items’ price is just and reasonable. For this reason, the solicitors will want to see a valuation.

that all the items included in the sale have been stolen: the fitted carpets, the curtains, the blinds, the free-standing furniture, the kitchen white goods, the non-recessed light shades and fittings. In fact, the only items that remain are the items that are fixed to the property – items that would have been impossible to remove intact without considerable skill and effort: the fitted kitchen units, the cupboards, the sinks, the wall-mounted oven, the fitted bathroom sanitary ware, the central-heating system, the intruder-alarm system. But what’s all that got to do with what you can sell? Well, it’s an unfortunate tale with a useful rule of thumb: if you can remove an item intact without using much effort, it’s probably an item that you can sell. In the above example, the stolen items

MAKING THE LAW WORK FOR YOU If you purchase a property for £250,000, you’ll pay tax at 1%. Pay a penny more and you’ll pay tax at 3%. Let’s say that you’re paying £252,000 for a property and obtain a valuation that says that the other items (the chattels) are worth £2000. It would be lawful for you to pay £250,000 for the property and £2000 for the chattels. That’s a tax saving of £5060—not enough to enable you to purchase a full-sized pool, but it’s a start.

Readers should consult professional advisers before acting upon the issues raised in this article. If you would like further advice regarding any of the issues raised please contact Kevin Craner at Hooper & Wollen Solicitors in Torquay 01803 213251 or e-mail kevin.kraner@hooperwollen.co.uk.

HOOPER & WOLLEN Solicitors Carlton House, 30 The Terrace, Torquay, TQ1 1BS Telephone 01803 213251 10 The Quay, Dartmouth, TQ6 9PT Tel 01803 832191 Belgrave House, 2 Winner Street, Paignton, TQ3 3BJ Tel 01803 521692 www.hooperwollen.co.uk

/May_2010  

http://www.hooperwollen.co.uk/downloads/pdf/26/May_2010.pdf

Read more
Read more
Similar to
Popular now
Just for you