Both sides of the CGT and Stamp Duty question

[punter]

I am considering buying a hotel whose price using a 30% figure for the value of goodwill and fixtures and fittings will be in the 4% stamp duty range. However, if we assign a value of 33% for goodwill and fixtures and fittings the price is in the 3% stamp duty range. This is a savings of almost 5,000 of REAL money.

What is the negative side, relative to CGT, for the seller to move from 30% to 33%?

Thanks for you help.

[steve@nunn-hayward.c]

The answer will depend on such factors as :-
1) the base cost of the assets;
2) the residual pool and "claw back"/"balancing" allowance position for Capital/Idustrial buildings allowances;
3) the availability of losses (capital/revenue)
4) other relief's being either capital/revenue in nature
5) his expected use of the funds, etc.,

the list without specific details of the sellers circumstances,could go on and on.

Generally Stamp duty is charged on the total contract price. I am therefore uncertain from the query as put as to how a reduction is being achieved in switching consideration between assets in the same contract?

There is however a real need for these issues to be addressed commercially and from a taxation point of view. I would be pleased to assist.Please call if you would like to take matters further.

Regards

Steve Cook, ATII
Tax Partner
Nunn Hayward, Chartered Accountants
01753 888211

[jeremy.newman@ourycl]

At the risk of teaching one’s grandmother to suck eggs, although the contract covers a variety of assets, Stamp Duty will only be assessed on items that are dutiable – goodwill and fixtures and fittings are not subject to Stamp Duty (he latter if they are genuinely removable and do not form part of the premises being conveyed). It is normal for a standard Stamp Duty form to accompany the contract to be assessed to Duty, splitting out the dutiable and non-dutiable assets.

The difficulty with the current issue is that, as the purchase price is close to the 3%/4% threshold, if the split is artificial, penalties and interest will arise – and the Stamp Office is looking closely at contracts for exactly this reason.

From a CGT viewpoint, Steve has already covered most of the issues. For the vendor, it will also depend on whether it is a company or an individual – if the latter, and assuming that s/he has been using the hotel as a qualifying trading asset for at least two years, the likely rate of CGT will be 10% as 75% business asset taper should be available. Therefore, they will want to avoid things such as balancing charges on capital allowance pools (and, indeed, perhaps on hotel allowances) and would, one suspects, rather have capital than income (subject to issues such as pension reliefs, etc.). They may well be amenable to having more of the price attributed to goodwill, but perhaps less so to having more attributed to fixtures and fittings.

Please call or email me if you need anything further

Jeremy Newman BSc(Econ) FCA ATII MEWI MAE
Partner
Oury Clark, Chartered Accountants
Slough
01753 551111