HMRC SDLT: SDLTM03735 – Sale by Tender Fees

Sale by Tender Fees

This section of the HMRC internal manual provides guidance on the principles and concepts related to sale by tender fees. It outlines the procedures and considerations for handling these fees within the context of tax regulations.

Explanation of sale by tender fees and their relevance to tax.
Guidelines for calculating and reporting these fees.
Compliance requirements for businesses involved in sales by tender.
Examples of scenarios where sale by tender fees apply.

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Read the original guidance here:
HMRC SDLT: SDLTM03735 – Sale by Tender Fees

SDLTM03735 – Sale by Tender Fees

This guidance explains the rules regarding tender fees when purchasing property through a sealed bid process in the UK. It clarifies how these fees are treated in relation to stamp duty land tax (SDLT), ensuring you understand the overall costs involved in your property transaction.

Understanding Sale by Tender

A sale by tender is a method used to sell property where interested buyers submit sealed bids. The seller reviews these bids and selects the one they feel is the best offer. In this process, buyers often face additional costs, such as a tender fee.

What is a Tender Fee?

A tender fee is an upfront payment made to the estate agent or seller as part of the bidding process. This fee is typically paid to facilitate the sealed bid process and may be required to indicate genuine interest in the property. The tender fee is different from the purchase price of the property itself.

How is the Tender Fee Treated for SDLT?

When calculating the SDLT on the purchase of a property, the total amount you pay, known as the chargeable consideration, must include both the purchase price and any additional fees, such as a tender fee.

Calculating Chargeable Consideration

The chargeable consideration is the total sum given for the property and includes:

The purchase price of the property
Any fees or costs that form part of the purchase, including tender fees

For example:

If you buy a bungalow for £350,000 and you also pay a tender fee of £5,000 (including VAT), your chargeable consideration for SDLT purposes would be £355,000. This total amount is calculated by adding the purchase price and the tender fee together.

Example of Sale by Tender

Let’s look at a real-life scenario:

A bungalow was advertised for sale, and I arranged to view the property through an estate agent. The seller invited interested buyers to submit sealed bids for the bungalow.
I decided to bid £350,000, and fortunately, my bid was accepted as the winning offer.
However, before proceeding, I was informed that my purchase was subject to a tender fee of £5,000, which included VAT.
Since I agreed to this condition, my total chargeable consideration for the property became £355,000, which included both the purchase price and the tender fee.

Why is it Important to Include the Tender Fee?

Including the tender fee in the chargeable consideration when calculating SDLT is essential because it ensures you are paying the correct amount of tax on your purchase.

If you do not include the tender fee when calculating your SDLT, you risk underreporting the total payment made for the property. This can lead to penalties if HMRC determines that you have paid insufficient SDLT.
It enhances transparency in property transactions, making it clear what is being paid for the property and any associated services.

Who Pays the Tender Fee?

Generally, the buyer pays the tender fee as part of the purchase process. However, it’s essential to clarify these terms with the estate agent or seller before submitting a bid. Here are a few points to consider:

Ensure that the requirement for the tender fee is stated clearly in the sales agreement or advertisements.
Be aware of when and how this fee should be paid – usually alongside your sealed bid.

Potential Issues with Tender Fees

While tender fees can be an essential part of the bidding process, there can be complications. Here are common issues and solutions:

If you find the tender fee is unduly high compared to similar properties, it may be worth discussing this with the estate agent.
If the terms regarding the tender fee are not clearly laid out, ask for clarification beforehand to avoid misunderstandings after placing a bid.
Some buyers may not fully understand that the tender fee is non-refundable, even if their bid is unsuccessful. It’s vital to acknowledge this possibility before engaging in the bidding process.

Seeking Further Guidance

If you have any questions regarding your specific situation, it’s advisable to seek professional advice. Here are some options:

Consult with a qualified property solicitor or advisor for guidance specific to your purchase.
Contact HMRC directly for questions related to SDLT calculations and obligations.

Changing Circumstances

Property transactions can be complex, and situations can change quickly. Here’s how to deal with new developments:

If you decide to withdraw your bid after paying the tender fee, ensure you understand the implications regarding the fee’s refundability.
Should the property price change or if additional costs arise, you need to reassess your financial obligations accurately, including a re-evaluation of the chargeable consideration.

Documentation and Record-Keeping

When engaging in a sale by tender and dealing with tender fees, proper documentation is vital. Here’s what you must keep track of:

Record all communication regarding the tender process, including emails, letters, and agreements.
Keep receipts for the tender fee and any other payments made related to the purchase.
Document the terms and conditions associated with the tender process, including any obligations tied to the sale.

Maintaining comprehensive records helps avoid disputes and will assist in the event of an HMRC inquiry or audit in the future.

Conclusion

Understanding tender fees in property transactions is essential for buyers. It impacts the total chargeable consideration for SDLT purposes and can influence the overall cost of the property purchase. By keeping accurate records, seeking advice when needed, and understanding both the obligations and rights involved, buyers can navigate the sale by tender more effectively.