REV 4
17 April 2002
STAMP DUTY ON UK LAND AND BUILDINGS
The Chancellor today announced a package of measures to tackle current avoidance of stamp duty on commercial property transactions and launched major reform to modernise stamp duty on land and buildings in the UK.
Tackling avoidance
Legislation will be included in Finance Bill 2002 to discourage a range of techniques currently used to avoid stamp duty on high-value property deals. Left unchecked, this activity represents a major threat to the Exchequer. The Government is therefore determined to take steps to ensure stamp duty is paid on the full range of transactions in UK property. These measures bring forward a fundamental part of the longer-term modernisation of stamp duty.
Modernising stamp duty
The main reforms are set out in a consultative document published today, which seeks views on the detail of the modernised regime. Legislation will be included in the Finance Bill 2003 to reform stamp duty. The reform will build on the 2002 measures to tackle avoidance, and will:
- support the Government's e-business agenda, in particular the introduction of paperless electronic conveyancing, and
- update the framework of the tax, bringing it into line with more modern taxes.
Individual home-buyers and their agents will see no immediate effect, but the reform will help pave the way for purchases to be conducted electronically in the future, making the house-buying process faster and more efficient.
In welcoming the changes, the Economic Secretary to the Treasury, Ruth Kelly, said:
"The case for change is overwhelming. Stamp duty on UK land and buildings is outdated. It does not reflect current commercial practice and it is not suited to the rapidly developing world of e-business. Moreover we are determined to stop the growing avoidance of stamp duty by a minority at the expense of the majority."
DETAILS: 2002 MEASURES
In order to discourage certain avoidance devices, legislation will be brought forward in the 2002 Finance Bill to:
- 'claw back' group relief where UK property has been transferred from one company to another in the same group, and within two years the company in receipt of the property leaves the group.
- 'claw back' the partial relief under Section 76 FA 1986 where a company acquires the whole or part of an undertaking of another company in exchange for shares in the acquiring company, and within two years control of the acquiring company passes to a third party.
- extend the penalty regime for documents executed in the UK to documents (relating to UK land or buildings) executed outside the UK. Penalties for the late stamping of documents executed outside the UK will in future run from 30 days after the date of execution.
- bring contracts for the sale of interests in land with a market value in excess of £10 million into charge, to tackle the avoidance of stamp duty on large deals through 'resting on contract' - where companies deliberately do not complete a transaction in the traditional way to avoid paying stamp duty on the document that effectively transfers ownership of property.
Taken together, these measures will ensure stamp duty is payable where a transfer artificially 'rests' on contract, discourage the use of companies set up to avoid stamp duty on UK property, and stop the increasing exploitation of the existing stamp duty reliefs for company reorganisations.
DETAILS: MODERNISING STAMP DUTY ON LAND AND BUILDINGS IN THE UK
Impact of the revised regime
For the vast majority of individual house-buyers, tenants and their agents, and for most businesses, stamp duty will continue to be payable on transactions in the usual way, though there will be changes to the administration of the tax. Modernisation will pave the way for future changes to the house-buying process, in particular, the introduction of electronic documents that will, over time, replace the current paper-based systems.
For more complex, higher-value commercial transactions, the revised regime will be less open to abuse and will provide a streamlined approach to assessing and collecting any stamp duty due. The consultation will invite views on the detail of how this will work in practice.
Scope of the charge
The reformed stamp duty charge will apply to all transactions in respect of interests in UK land and buildings. So, as now, it will apply to purchases of freeholds and leaseholds over £60,000, and to certain new leases. The reform will not have any significant impact on either the stamp duty, or the main stamp duty reserve tax (SDRT), charge on shares.
It is anticipated that all existing reliefs and provisions will be carried forward to the revised regime, unless they are no longer needed or could be exploited to undermine that regime. In particular, the stamp duty relief for land and property in disadvantaged areas (see press notice HMT1 for details on this relief) will be carried forward.
New reliefs
The revised regime will not apply to:
- transfers of, and agreements to transfer, goodwill. These will be exempted from stamp duty with effect from 23 April 2002. This change puts goodwill on a consistent footing with other intellectual property, and will bring immediate benefit to sales of UK businesses. (see press notice REV/C&E1 for further details)
- transfers of debts. These will be removed from the scope of the modernised stamp duty regime with effect from late 2003 and will make it easier for companies to raise finance through debt factoring and the issue of bonds secured on debt portfolios.
Tackling avoidance
A key objective of modernising is to stop avoidance and ensure that everyone pays their full share of the tax. Under the revised regime, a range of current avoidance techniques will be stopped.
In particular, there will be specific rules to stop avoidance through the use of companies and non-corporate vehicles (such as trusts and partnerships), often known as "special purpose vehicles" or SPVs. Under the revised stamp duty regime, the Government proposes to create a charge triggered in certain circumstances by transfers of shares or interests in a limited range of property-owning vehicles. Broadly, the charge will be equivalent to the stamp duty that would be due if the land and buildings contained in the vehicle had been transferred directly to a new owner. The intention is to put the stamp duty treatment of property transfers by way of special vehicles on the same footing as transfers by way of sale.
The charge will apply to all qualifying transactions taking place after the introduction of the rules, including future transactions in vehicles already in existence, and regardless of whether they are registered inside or outside the UK.
The precise scope of this charge, and the type of vehicles affected, will be the subject of detailed discussion in the summer as part of the wider consultation.
Stamp duty on new leases
The Government also wishes to review the current stamp duty charge on the grant of new leases (known as "lease duty"). At present this charge does not always reflect modern commercial practice nor the value of the lease. The Government would welcome views on the best methodology for charging new leases, with the presumption that the revised charge will:
- correspond more closely to the stamp duty charge on a freehold transfer or lease assignment of a property of similar value;
- better reflect modern commercial practice; and
- discourage the use of leases to reduce the stamp duty charge on the sale of freehold property.
Stamp duty on shares
In the main, transfers of shares and securities are charged to stamp duty reserve tax (SDRT), which was introduced in 1986. This reform will not disturb the scope and impact of the main SDRT charge and of stamp duty as it applies to share transfers.
NOTES FOR EDITORS
Stamp duty is over three hundred years old and the legislation was last consolidated in 1891. It is a charge on documents that transfer property, and most of the yield arises from conveyances of land and transfers of shares. The modernising proposals focus on the transactions in UK land and buildings (the existing rules for shares will remain unchanged).
When duty is paid, stamps are still impressed physically on the document concerned. Unlike more modern taxes there is no provision for the tax to be collected directly from taxpayers by assessment. The main sanction for failure to pay is that the document cannot be registered with the UK land registries or other registry, or used in evidence in court proceedings.
Stamp duty on land and property currently raises over £4 billion (of which, about £300 million relates to lease duty). It is paid each year by around 1.4 million individuals buying houses, around 80,000 companies purchasing commercial property, land or housing stock, and around 250,000 individuals and businesses taking out new leases on residential and commercial property.
During the last few years, however, there has been a growth in arrangements designed to avoid stamp duty on transfers of land and buildings, relying on amongst other things the lack of enforcement powers.
A tax on paper documents is simply not suited to modern commercial practice, e-business or future developments in the house-buying process. In particular, a primary reason for modernising stamp duty is to introduce a regime that is fully able to support wider Government plans to facilitate e-business. For England and Wales, HM Land Registry is to publish a major consultation on the plans for e-conveyancing shortly. The Keeper of the Registers of Scotland also intends to consult on the results of the recently completed pilot of "Automated Registration of Title to Land" later this year. The Inland Revenue has worked closely with both these offices over the past months, and it is generally agreed that, ultimately, such electronic systems will encompass the collection of stamp duty.
Copies of the consultative document are available on the Inland Revenue website. Alternatively, they can be obtained from the following address:
Inland Revenue Visitors Information Centre
Ground Floor, South West Wing, Bush House, Strand, London WC2B 4RD
The closing date for responses is 19 July 2002.
A partial Regulatory Impact Assessment has been prepared for the reform of stamp duty and is available on the Revenue website or from the above address.
HM TREASURY PRESS OFFICE
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
INLAND REVENUE PRESS OFFICE
Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)
Non-media enquiries: 020 7438 6420
(office hours only)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to Budget 2002 may also be found on the Internet at the following addresses:
Inland Revenue www.inlandrevenue.gov.uk