Stamp Taxes: recent developments (April 2008)
Recent developments in the area of Stamp Taxes have included a court case that highlighted the unavailability of an intended exemption, proposed areas of deregulation in the Budget, as well as various anti-avoidance proposals.
By way of introduction, it is worth reviewing the Stamp Duty and Stamp Duty Land Tax (SDLT) rates and bands. For residential and business or mixed property transactions, the duties are as follows:
Residential:
- Less than £125,000: 0%
- £125-250,000: 1%
- £250-500,000: 3%
- More than £500,000: 4%
Business/mixed
- Less than £150,000: 0%
- £150-250,000: 1%
- £250-500,000: 3%
- More than £500,000: 4%
Notes
- SDLT is chargeable on leases at 1% on the net present value of rent payable (in excess of the nil rate bands – £125,000 or £150,000).
- Stamp Duty on share transactions is chargeable at a rate of 0.5% rounded up to the nearest £5.
- The fixed rate duty of £5 on certain documents has now largely been abolished
Recent developments
The Elizabeth Court (Bournemouth) Limited case highlighted the fact that an exemption put in place in 2003 was simply not available, as the government had failed to implement fully the required changes. In broad terms, the case involved tenants wishing to exercise their right to buy the freehold of their properties. Without the relief, the multiple transactions are treated as one for the purposes of determining the rate of SDLT. Although, individually, each amount paid was less than the nil rate band, when taken in aggregate the total was above, and so the higher rate of tax applied.
We understand that it is possible that the failure to implement the legislation completely will be remedied in the Finance Bill 2008.
Welcome deregulation in Budget proposals
Moving on to the Budget, the deregulatory proposals are very welcome, as the reporting obligations for Stamp Duty and Stamp Duty Land Tax are very wide-ranging. Three changes are of note:
First, whilst the duty on transactions below £125,000 for residential and £150,000 on business is 0%, a return still has to be submitted (“no tax due”) in order for a certificate to be obtained, so that the land transfer can be registered at the Land Registry. The Budget proposes that if the consideration is not more than £40,000, there is no need to submit a notification. For leases there is still, however, a need to consider the level of rent: in this respect, the threshold has been increased from £600 to £1,000.
Second, the increase in the rent threshold has also been applied to an anti-avoidance provision. This provided that the nil rate band was not available in respect of both the rent and any premium if the rent was £600 or more. This now only applies to non-residential properties and then only where the rent is £1,000 or more.
Finally, certain documents, such Declarations of Trust, had a fixed duty of £5. This has now been abolished. Further, where stamp duty is chargeable at 0.5% (on transfers of shares and securities), a threshold consideration of £1,000 now applies. Accordingly, no Stamp Duty is due if the consideration is below £1,000.
HMRC efforts to reduce avoidance
HM Revenue & Customs (HMRC) continues to focus on an assortment of perceived abuses of the various reliefs available from SDLT. In particular, they have introduced a further provision for clawing back the relief on the transfer of a property asset within a group of companies, where there is a subsequent change in control of the purchasing company.
SDLT generates considerable sums for the Treasury and it is not surprising that anti-avoidance provisions are being considered that target those who, rather than buy an expensive residential property subject to 4% SDLT, are buying shares in the company that owns the property, attracting 0.5% duty instead.
It is not possible to give definitive guidance on every Stamp Tax situation and provision: the legislation is too complex for a briefing of this kind. However, it is an area that needs businesses’ close attention, and we recommend you contact your independent financial adviser for further discussion.
© Baker Tilly UK Group LLP, all rights reserved, 04.08
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