Stamp Duty Land Tax and commercial goodwill
Stamp Duty on Property was abolished in 2003 and replaced with the confusing and similarly named Stamp Duty Land Tax (SDLT). Whereas the old Stamp Duty was based on a value stated in the document, SDLT is a tax on an Owner/Tenant not on the Property itself.
In addition the old Stamp Duty rules were relatively straight forward whereas SDLT is assessed on the basis of incredibly complex rules and formulas which would involve a high level of education in mathematics if you really wanted to understand them! HMRC kindly produce a calculator to assist you in the application, but this can give a false impression that SDLT is straightforward.
If you are buying a business, usually you are purchasing distinct assets, such as a property, goodwill and chattels. You may think that you only pay SDLT on the property bit, given it is a ‘Land Tax’, however, this is not the case.
Take, for example, a restaurant where the premises are valued at £150,000 and the goodwill at £100,000. HMRC rules say that SDLT is chargeable on any goodwill which forms part of the land on the sale of a business. HMRC’s guidance states “what is described as the goodwill [can] actually forms part of the land. This is often described as inherent goodwill because it is inherent in the land”. So in our restaurant example, it would be difficult to separate the goodwill from the location of the premises. This raises the argument that that goodwill is inherent goodwill and accordingly SDLT should be assessed on the full £250,000 paid.
There have been discussions between HMRC and tax experts for several years about how to value goodwill in trade relating properties for tax purposes. Unfortunately, discussions have reached an impasse, but ultimately it is possible to break down the apportionment for goodwill into what could be classified as inherent goodwill.
Unlike Stamp Duty, SDLT is a complex obligation and is self-assessed (like Income Tax). Failure to get this right could lead to penalties for unpaid tax, interest and the threat of HMRC investigation.
For this reason when acquiring any form of commercial property, ask both you legal and tax advisors to provide you with a clear explanation of your SDLT liabilities, not only at the point of acquisition, but also during the ‘life’ of your ownership.Business, Commercial Property, General, George Ide, News