What Is A Completion Statement?
When you are buying or selling a home, you can expect to collect lots of paperwork along the way. Among the documents you’re likely to get is a completion statement. What is a completion statement, though? Why is it so necessary to know what this document is above all others? Where do you even obtain a completion statement, and what does it contain? This brief overview can help you learn more about this key document and know what to do next when you get yours.
What Is A Completion Statement – The Simple Answer
After completion (and in some cases, just before), the seller’s solicitor prepares a document known as a “Completion Statement” or “Settlement Statement.” This statement itemises all the financial transactions related to the property sale, including the purchase price, adjustments for any outstanding bills (such as property taxes or service charges), the seller’s conveyancing fees, and any other expenses or deductions involved in the transaction.
The completing statement is crucial as it provides a breakdown of the final financial arrangements between the buyer and seller. It helps both parties understand the funds they have received or paid, and it may also be used for accounting purposes or tax filings.
Understanding What You’ll See On A Completion Statement
Understanding what information is included in a complete statement is essential for both buyers and sellers, ensuring a smooth and transparent transaction. Here’s a list of what you may find in your statement.
- Purchase Price and Deposit: One of the primary elements on a completion statement for the sale of the property is the purchase price, which reflects the agreed-upon amount for the property. Additionally, the statement will outline the deposit paid by the buyer at the onset of the transaction.
- Mortgage Details: If the buyer is financing the purchase through a mortgage, the completion statement will list the mortgage details to help you better understand the mortgage completion. This includes the lender’s name, the mortgage amount, interest rates, and any applicable fees or charges. If you bought your home using Help to Buy, you may also see Help to Buy redemption information in this section. You’ll notice the term “redemption statement,” meaning one in which you will see the amount outstanding, the interest being charged to you, and the other fees involved.
- Taxes and Duties: The completion statement will also account for any taxes and duties involved in the property transaction. In the UK, this typically includes Stamp Duty Land Tax (SDLT) for buyers, although the specific amount depends on the property’s value. Sellers may also be subject to Capital Gains Tax (CGT), and the completion statement will reflect this if applicable.
- Legal Fees: Both buyers and sellers will incur legal fees during a property transaction. The completion statement outlines the solicitor’s fees, including any disbursements or additional expenses incurred during the conveyancing process.
- Search Fees: As part of the property purchase, various searches are conducted to ensure all legal and environmental factors are accounted for. These searches incur fees, such as local authority searches, drainage searches, and environmental searches. The completion statement will list these fees separately.
- Estate Agent Fees: Sellers are typically responsible for paying estate agent fees upon completion. The completion statement will detail these fees, which are usually a certain per cent of the final sales price.
- Miscellaneous Expenses: Other miscellaneous expenses may arise during the process, and these will be itemised on the completion statement. For instance, additional surveys, removal costs, or any outstanding charges will be accounted for in this section.
- Balance Due: The completion statement will provide a clear breakdown of all the costs involved, deducting the deposit and any other payments made up to that point. Consequently, it will calculate the balance due from the buyer to complete the purchase.
- Net Sale Proceeds: In the case of a property sale, the completion statement will outline the final sale price, deducting various expenses and any outstanding mortgage balance. This will indicate the net sale proceeds that the seller will receive upon completion.
- Apportionments: If the property transaction occurs during an ongoing financial period, such as when it comes to ground rent or service charges, the completion statement will also include apportionments. These calculations ensure that both the buyer and seller contribute the appropriate amount for any outstanding expenses.
It’s worth noting that completion statements may differ slightly depending on the solicitor or conveyancer handling the transaction. However, the information mentioned above should be present on most completion statements in the UK.
What Are The Longest Sections In Completion Statements?
While some sections of the statement are fairly short, others are quite extensive, and one of those is the legal fees section. When it comes to property transactions in the UK, legal fees are an integral part of the process. These fees cover the solicitor or conveyancer’s services, making certain the legal parts of the sale are handled professionally and efficiently. The completion statement will detail the breakdown of these legal fees and any associated disbursements or additional expenses. You’re likely to see quite a few.
The first section will tell you about the solicitor’s fees. These fees change based on how complicated the transaction is, the experience level of your solicitor, and the location of the property. It is essential to review these fees carefully to understand the costs involved.
The second section usually involves disbursements. Disbursements refer to additional expenses incurred during the legal process. These expenses can include search fees, land registry fees, and bank transfer fees. The completion statement will list these disbursements separately, providing transparency regarding their costs.
You’ll also find a section on Land Registry fees. As part of the property transaction, it is necessary to register the change of ownership with the Land Registry. The completion statement will reflect the land registry fees, which are typically based on the property’s value. These fees cover the cost of updating the official records to reflect the new owner’s details.
Legal fees are subject to Value Added Tax (VAT) at the prevailing rate, so you’ll find a section about that as well. The completion statement will indicate the VAT amount payable on the solicitor’s fees and other related expenses. VAT is currently set at 20% in the UK, although it is always advisable to verify the current rate at the time of the transaction.
You may also find VAT on disbursements: Some disbursements may also attract VAT. For instance, if the solicitor or conveyancer obtains search reports on behalf of the buyer, these reports may include VAT charges. The completion statement will specify any applicable VAT on disbursements, ensuring an accurate representation of all costs incurred.
Additional expenses are also typically listed. In some cases, additional expenses may arise during the legal process. For example, if the property is leasehold, there may be costs associated with reviewing the lease agreement or obtaining a management pack from the freeholder. These expenses will be itemised on the completion statement, ensuring transparency and providing a clear understanding of all financial obligations.
It is essential to carefully review the legal fees section on the completion statement to understand the breakdown of costs involved in the property transaction. This will allow buyers and sellers to have a clear understanding of the expenses associated with the legal process and ensure that all fees are reasonable and fairly calculated.
Leasehold Vs. Freehold Completion Statements
It’s important to note that the completion statement you might get with a leasehold property is quite different from the one you might get when you purchase a freehold property.
A leasehold completion statement should list three key sections.
- Ground Rent:
A significant distinction between leasehold and freehold properties is the presence of ground rent. Leasehold buyers typically pay annual or monthly ground rent to the landlord or freeholder. The amount can vary, and it is essential to review the lease agreement to understand the ground rent provisions and any potential increases over time. The ground rent charge will be included in the leasehold completion statement.
- Service Charges:
Leasehold properties often come with additional costs, such as service charges. These charges cover the maintenance and management of communal areas within a shared building or development. Service charges are calculated based on the lease terms, the services provided (e.g., landscaping, cleaning, security), and the property’s size and location. The completion statement will itemise these service charges and may also include any outstanding or prepaid amounts.
- Lease Extension or Renewal Fees:
Leasehold completion statements can include fees related to extending or renewing the lease. If your lease is nearing its expiration date, you may need to negotiate a lease extension with the freeholder. Fees associated with lease extensions vary depending on factors such as the remaining lease term, property value, and leasehold market conditions. It is crucial to consult with your solicitor or conveyancer to understand these costs fully.
On a freehold completion statement, though, there is some crossover, but not everything is the same. For example, similar to leasehold properties, freehold completion statements will include Land Registry fees. These fees cover the cost of registering your ownership with the Land Registry to establish legal protection and ownership rights. The fees associated with the Land Registry depend on the property’s value and the chosen service level.
You won’t, however, see ground rent or service charges sections because, unlike leasehold properties, freehold properties do not carry ground rent or service charges. You are the outright owner of both the property and the land it occupies, meaning you have full control and legal responsibility for maintaining your property. Consequently, these fees will not be present in a freehold completion statement.
You will see insurance-related costs, though. As the property owner, you are responsible for obtaining appropriate insurance coverage to protect your investment. These costs change based on how big it is, where it’s at, and how much it might cost to rebuild. Insurance fees are typically an annual expense and will be listed on the completion statement as such.
Where You Get A Completion Statement
A completion statement is typically provided by your solicitor or conveyancer. When you are in the process of buying or selling a property, your solicitor or conveyancer will handle the legal aspects of the transaction, including the completion process, and this document is just part of that process. If you’re working with an online conveyancing service, often you’ll find it in your property portal. If you’re working with a solicitor in person, he or she will typically hand it to you or mail it to you once it’s completed.
Completion by post is a possibility. It doesn’t always have to be done in person. The Law Society Code for Completion by Post says that all the necessary documents and funds may be exchanged through the postal service or courier, but there are a few rules and regulations around it, but they primarily apply to the solicitor so the transaction is as smooth as possible.
The process of completion by post in a real estate transaction typically involves the buyer’s solicitor sending the purchase funds to the seller’s solicitor via a banker’s draft or a CHAPS (Clearing House Automated Payment System) payment. Once the funds are received and verified, the seller’s solicitor will confirm receipt and authorise the release of the keys to the buyer, completing the transaction.
When You Get A Completion Statement
You typically receive the completion statement just before the completion date of the property transaction. The statement is usually issued to you a few days before the scheduled completion date. This allows you and your solicitor or conveyancer to review all the figures and ensure that everything is accurate and in order before the actual completion takes place.
Why Completion Statements Matter In Home Sales
Completion statements are of significant importance in property transactions in the UK for several reasons. The first is that they provide financial transparency. They offer you a breakdown of all the financial aspects of the property transaction. They itemise the total amount due, including the purchase price, taxes, legal fees, and any outstanding mortgage payments. This transparency helps both the buyer and the seller understand the exact financial implications of the transaction.
Additionally, the completion statement ensures that the correct amount is paid and received on the completion date. It serves as a reference point for verifying that all parties involved are paying and receiving the agreed-upon sums, minimising the risk of errors or misunderstandings.
There are other important facets of the completion statement, too. The completion statement helps you remain in legal compliance with the various aspects of property sales. It helps to make sure you’ve calculated all of the taxes correctly like stamp duty.
It may also help you avoid disputes because it offers such a clear breakdown of the involved costs and what you’re expected to pay and when there likely won’t be any disputes between buyers and sellers. If there are any discrepancies, they can be addressed well before completion.
These completion statements are also helpful when it comes to budgeting and planning. It allows buyers to properly prepare for a transaction and helps them budget for everything they may have to pay by the time the day of completion arrives.
What’s more, though, is that completions statements are incredibly helpful financial records for everyone involved in the transaction. They can be referred to for accounting purposes, but they can also be referred to when it comes to paying taxes or dealing with other financial documentation.
You may also need a completion statement when it comes to a mortgage. Lenders often look for a completion statement to ensure the value of the property and the amount of the loan all align.
Should You Keep A Completion Statement?
While everyone involved in a real estate transaction automatically receives a completion statement, not everyone keeps one. However, keeping a completion statement in UK real estate is crucial for several reasons.
- It’s a Record of an Important Financial Transaction: The completion statement serves as an official record of the financial aspects of the property transaction. It outlines all the financial details, including the purchase price, deposit paid, and any other costs or adjustments. Having this record can be essential for both the buyer and seller to refer to if any disputes or questions arise in the future.
- It Helps You Verify Costs: The completion statement helps verify that all the costs associated with the property purchase have been accurately calculated and agreed upon by both parties. It ensures transparency in the transaction and avoids any misunderstandings regarding the financial obligations.
- It May Be Important for Tax Purposes: The completion statement can be valuable for tax purposes. It may include details of any stamp duty or other applicable taxes paid on the property purchase. Such information can be useful while filing tax returns or seeking tax-related deductions.
- It Could Be Needed for Future Legal Requirements: Certain legal requirements might arise after the completion of the property purchase. Having a completion statement readily available can assist with any potential future legal inquiries or documentation needs.
- Your Lender May Need It: If the property purchase involves a mortgage or lending institution, they may require the completion statement for their records and to ensure that all financial aspects of the transaction have been correctly accounted for.
- Capital Gains Liabilities May Demand You Keep It: If the property is ever sold in the future, having the completion statement from the original purchase can be useful to calculate any capital gains tax liabilities accurately.
Overall, retaining a completion statement is essential for maintaining a clear and organised record of the property transaction, ensuring compliance with legal and financial obligations, and providing protection and support in case of any future issues or queries related to the purchase.
Your Completion Statement Matters!
Completion statements play a crucial role in the world of UK real estate. They serve as a comprehensive summary of all financial transactions related to a property sale or purchase. These statements provide transparency and clarity, helping buyers and sellers understand the breakdown of costs, fees, and taxes involved in the transaction. Completion statements also act as an important record-keeping tool for both parties and their legal representatives. By carefully reviewing and understanding these statements, individuals can ensure that all financial aspects of a real estate transaction are accounted for accurately. Whether you are a seasoned investor or a first-time buyer, being knowledgeable about completion statements will empower you to make informed decisions and navigate the complex landscape of UK real estate transactions with confidence.