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Revenue news - When is a fixture not a fixture?

08 August 2001
Issue: 3819 / Categories:

Where the consideration for the conveyance or transfer on sale of a property includes an amount attributed by the parties to chattels (or moveables in Scotland), that amount will not normally be charged to stamp duty provided the chattels pass by delivery and are not conveyed in the document.

Where the consideration for the conveyance or transfer on sale of a property includes an amount attributed by the parties to chattels (or moveables in Scotland), that amount will not normally be charged to stamp duty provided the chattels pass by delivery and are not conveyed in the document.

Case law provides that where assets of different character are agreed to be sold for one consideration for the whole, an apportionment between the chargeable and non-chargeable property must be a bona fide one. This is taken to mean that it must be based on the commercial value of the property concerned. A contract for sale based on a false apportionment may be unenforceable because of its improper intent and can therefore have more far-reaching consequences.

Over the last year or so, Stamp Taxes has seen a steady increase in the number of cases where the amount of consideration attributed to items claimed to be chattels is more than a small percentage of the total consideration. This is especially the case where this brings the chargeable amount just below the £250,000 or £500,000 thresholds.

Customers should note that in cases where it appears that an excessive amount of the consideration has been artificially attributed to non-chargeable items, a full inventory and breakdown of the consideration will be requested by Stamp Taxes. This is to ensure that all the items claimed as chattels are properly within that description and that the allocation of the consideration is bona fide and not in breach of section 5, Stamp Act 1891.

Stamp Taxes does not provide a comprehensive list of items which are accepted as chattels or moveables, since many cases need to be considered on their own merits and case law is evolving in this area all the time. However, items which will generally be accepted as chattels or moveables include carpets, curtains, light shades, pot plants, free-standing kitchen white goods and portable electric or gas fires.

Items which are generally unacceptable as chattels are fitted kitchen cabinets and cupboards, fitted kitchen white goods, fitted bathroom sanitary ware, central heating systems, plants growing in the soil, central heating systems and gas fires connected to a piped gas supply.

Plant and machinery may in certain circumstances be treated as 'goods, wares and merchandise' and will then fall within the exception to the charge to stamp duty under paragraph 7 of Schedule 13 to the Finance Act 1999.

The requirement for plant and machinery to be in an actual state of severance at the date of the agreement for sale for it to fall within the 'goods, wares and merchandise' description is an historical one. It stems from case law based on circumstances involving mortgagees in possession. The two main tests as to whether plant and machinery constitutes goods, wares and merchandise are essentially the same as for chattels, namely (1) the degree of annexation to the building or land and (2) the purpose or object of annexation. Stamp Taxes has for many years required customers to certify that plant and machinery claimed as loose plant must be in an actual state of severance if it is to be considered as goods and therefore outside the charge to duty on an agreement for sale. We will no longer insist upon this certification being given.

Where it would be possible for plant and machinery to be relatively easily severed from the property to which it is fixed, say for example by the simple expedient of removing some bolts securing it to the floor or walls, we will no longer insist that this is actually done before it will be considered to be 'loose plant and machinery'.

The position in law has not changed nor does this mean that all plant and machinery suddenly falls within the exception. As in the past, the consideration attributed to fixed plant will be chargeable to stamp duty on the agreement for sale document. Heavy plant and machinery which is integral to a building and plant where its removal would damage the building or land will still be considered fixed plant. This will be particularly relevant in respect of plant such as, for example, escalators and elevators, boilers, furnaces, walk-in refrigerators and restaurant cooking stations, none of which would be likely to be classed as loose plant for stamp duty purposes. Each case will be considered on its own merits. The Stamp Taxes form Stamps 22 will be amended to reflect this new treatment. The equivalent forms used in Scotland and Northern Ireland do not require amendment since they did not previously include the certification requirement.

(Source: Revenue Stamp Taxes Bulletin Issue 1.)

Tax and accounting

The Government has announced that it intends to introduce legislation in the next Finance Bill which will ensure that, when there is a change in the basis on which profits are taxed, trading profits are neither taxed twice nor omitted from charge; and relief is provided once, and once only, for trading expenses.

The legislation will replace the existing rules governing changes of accounting basis. The new rules will apply in cases where a change is made to the way that profits of a business are computed for tax purposes.

The legislation will apply generally for accounting periods ending on or after 1 August 2001, and in relation to returns filed or re-filed from that date.

Rules in section 44 of, and Schedule 6 to, the Finance Act 1998 seek to ensure that where a company changes its accounting basis, any profits or losses that would, as a result of the change, never be brought into account under the new basis are brought into account in the year of change.

These rules operate to remove from a charge to tax any amounts that could otherwise be taxed twice. They also deny relief to amounts of expenses that could otherwise be relieved twice in the company, by recovering any deductions already given which could otherwise be given a second time following the change. The rules also apply if receipts or expenses would otherwise fall out of account on a change of accounting basis.

Section 44 and Schedule 6 will be replaced by a new set of provisions which will apply both:

(1) where there is a change of accounting approach giving rise to a prior period adjustment; or

(2) where there is a change, either in law or practice, in the way an accounting basis is adapted for tax purposes by making adjustments to it, and in particular where a person moves from making adjustments to an accounting basis to following that basis without adjustments. This can happen, for example, where a court decides that the adjustments previously made are not in accordance with the law.

The approach of Schedule 6 was to bring the prior period adjustment amount into charge (or relieve it) in the period immediately after the change. The new legislation will include relieving provisions that allow the tax effect of the change to be spread over a period.

These relieving rules will apply where expenditure has been relieved as incurred under existing practice, but where court decisions now require that the expenditure be relieved only as it is taken to the profit and loss account. Applying the existing rules in Schedule 6 to such a change of tax basis would result in the immediate clawback of tax relief already granted. In these cases, the new legislation will allow the company to retain the benefit of the immediate tax relief but will disallow amounts that would otherwise be relieved twice after the change. These rules will apply for returns filed or amended on or after 1 August, whenever the change of tax treatment took place.

The new rules will also apply where banks, commodities and derivatives dealers, and certain other financial concerns including general insurance companies, move from a realisation basis to a mark to market basis for tax purposes. Again, without relieving rules, the Schedule 6 approach would tax, in the period of change, the whole of any difference between the cost of the assets and their market value at the time of change, if greater (the 'uplift').

Instead of bringing the uplift into charge immediately on the change, a company that moves to a mark to market basis for tax will only be required to bring the uplift on assets owned at the date of change into tax upon disposal. Alternatively the company may elect to spread the whole uplift over six years. These rules will also apply if the market value at the time of change is lower than cost, but will not apply where the company has already filed a return reflecting a change to mark to market.

Rather than requiring companies which are still on a realisation basis to reopen or refile their tax returns, the Government will allow these companies to elect to use the realisation basis for periods of account covering 1 August and earlier periods, and to retain the realisation basis for future periods for all assets held at that date. Where this election is made, mark to market will apply only to assets acquired after 1 August. Identification rules will be required to equate a part holding of an asset that is sold with a purchase either made after 1 August or on or before that date.

Where a company makes this election to retain the realisation basis for existing assets, tax on any uplift will be deferred automatically until disposal, so there will be no need for the relieving rules described above.

The new provisions do not apply to assets within the loan relationships rules for corporate and government debt, or the financial instruments rules for certain derivatives. They will apply mostly to shares. The rules will not apply to life assurance business.

(Source: Revenue press release dated 1 August 2001.)

Goodwill and intellectual property

The Revenue is receiving an increasing number of enquiries about stamp duty in relation to certain types of 'intellectual property' relating to computer applications. The following is a brief outline of what is and what is not chargeable.

Not chargeable is intellectual property including: domain names; databases; software applications.

As regards goodwill, traditionally this refers to the rights associated with carrying on the business, the 'good name' and established reputation which brings with it the promise of trade. Business goodwill is chargeable with stamp duty. However, if the goodwill is derived from intellectual property for instance, it is associated with a trademark, then it is exempt from duty under section 129(2), Finance Act 2000.

'Know-how' is not chargeable with stamp duty. There is also nothing to pay on trade marks or assignments of trade marks.

(Source: Revenue Stamp Taxes Bulletin Issue 1.)

Issue: 3819 / Categories:
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