New reliefs to promote social housing, consultation on a possible new relief for new developments on brownfield sites, and firm action to counteract avoidance devices were announced today. There will also be a 1/2% increase in the rates of duty on property over 250,000 pounds. This leaves unaltered the current exemption and 1% rate which cover 95% of all residential property transactions.
The main proposals will:
– introduce new reliefs for transfers of property to registered social landlords;
– exempt sales of intellectual property from Stamp Duty;
– block a number of avoidance devices and introduce a measure to allow new avoidance schemes to be countered as they arise.
– increase the rates of Stamp Duty on sales of property (excluding shares) for more than 250,000 pounds
The commencement dates for these measures are given below.
Rates and thresholds for transfers of property
The new rates and thresholds
1. Under the proposals the rates of duty on sales will be:
Up to 60,000 pounds- nil
Over 60,000 pounds up to 250,000 pounds – 1 per cent
Over 250,000 pounds up to 500,000 pounds – 3 per cent
Over 500,000 pounds – 4 per cent
2. The rate of duty applies to the whole price paid. So for example a purchase at 170,000 pounds will attract duty of 1,700 pounds, and a price of 300,000 pounds will give rise to duty of 9,000 pounds.
3. Stamp Duty on the assignment of an existing lease is charged in the same way as the transfer of a freehold.
4. On the grant of a new lease, duty is charged separately on the premium (at the same rate as for a sale) and on the average annual rent (under a scale of rates varying with the length of the term). The new rates will apply to lease premiums as they do for sales of freeholds. The separate scale of rates of duty on rent is unchanged. (But a technical defect in last year’s Finance Act will be put right, as previously announced.)
Increase in the threshold for short leases
5. To help both tenants and landlords it is proposed to increase from 500 pounds to 5,000 pounds the threshold for the Stamp Duty charge on the annual rent for new leases of up to seven years (or of indefinite term). So, where no lease premium is involved, tenants will not need to have such leases stamped, and landlords will not need to have the counterparts stamped.
Other types of property
6. The new rate scale, like the old one, will apply to a range of transactions in property other than land and buildings, such as goodwill and some forms of debt. The rates of duty on transfers of shares and other securities (normally 0.5 per cent) are unchanged.
7. On the basis that the necessary Budget Resolution is passed by the House of Commons before 28 March, the new rates will generally apply to documents executed on or after 28 March. But the present rates will apply where the document gives effect to a contract made on or before 21 March, unless the document results from the exercise of an option, an assignment, or further contract made after 21 March.
8. Where an agreement for lease has been made on or before 21 March, but the lease resulting from the agreement is not granted until 28 March or later, the present rates of duty will apply to both the agreement and the subsequent lease. (Any duty paid on the agreement is credited against the duty on the lease.)
Registered social landlords
9. With effect from Royal Assent to the Finance Bill, new Stamp Duty reliefs are being introduced for transfers and leases of land and buildings to Registered Social Landlords (RSLs). RSLs provide social housing and are registered under the Housing Acts. The relief will also apply to equivalent bodies in Scotland and Northern Ireland.
10. Many RSLs are charities and benefit from the general Stamp Duty relief for charities. The new reliefs will in addition exempt
– all transfers to resident-controlled RSLs, from whatever source;
– transfers between RSLs;
– transfers to RSLs from local authorities and Housing Action Trusts.
– acquisitions by RSLs which are assisted by public subsidy, including Social Housing Grants.
Brownfield property developments
11. In the light of the recommendations made by Lord Rogers’ Urban Task Force report, the Government is attracted to the idea of offering relief from Stamp Duty for the first sale of property developed on appropriate brownfield sites. The Government will consult with interested parties on how this measure might best be targeted to help meet the Government’s objectives of generating an urban renaissance and encouraging better use of brownfield land, and how it could work in practice.
12. Transactions in intellectual property will be exempted from Stamp Duty to help boost R&D and foster an environment in which invention and innovation are encouraged. This will exempt transfers of patents, trade marks, registered designs, copyrights, plant breeders’ rights, and licences in respect of them. The exemption will apply to instruments executed on or after 28 March.
13. A further Technical Note will be issued by the Inland Revenue later in the year on the more general review of the taxation of intellectual property. This will consider whether new acquisitions of all other intangible assets within Financial Reporting Standard 10 should be brought within a reformed regime.
14. Transfer documents which relate only to intellectual property will no longer need to be stamped. Where property sold under an instrument consists partly of intellectual property and partly of other chargeable property, an apportionment of the sale price will be made to determine the amount chargeable to duty.
15. Where an instrument is to be certified as not forming part of a larger transaction or series of transactions, the value of any intellectual property involved will in future be disregarded.
16. Faced with growing avoidance of Stamp Duty, it is proposed to stop five devices which seek to reduce the rate at which duty is payable.
17. These changes will apply to documents executed on or after 28 March subject to the commencement provision described in paragraph 7 above.
Structuring transactions without using sales
18. Transfers of land or buildings in consideration for other forms of property can be arranged in ways that avoid there being a conveyance on sale of the land or buildings concerned. This enables the normal rates of Stamp Duty applying to transfers of land and buildings to be avoided.
19. In future, such transfers will be treated as conveyances on sale, so that Stamp Duty on the transfer of the land will be calculated in the normal way, whether the documents effecting the transfer are drafted to result in:
– two sales;
– a sale of one piece of property in consideration for the transfer of other property; or
– a legal exchange.
20. The changes do not affect
– the amount of any Stamp Duty due on the transfer of the other property.
– cases where land is sold in consideration of the transfer of a second piece of land together with equality money. In such cases there will, as now, be only one charge to ad valorem Stamp Duty, the transfer of the second piece of land attracting fixed duty at 5 pounds.
– the position where land is sold in consideration of something that is not property, such as an obligation to carry out building works or an obligation to pay benefits under a pension scheme. Such transfers remain chargeable only with fixed duty at 5 pounds.
– situations where specific exemptions (such as those for conveyances to charities or within groups of companies) apply.
21. A parallel change will be made to ensure that Stamp Duty at the rate of 0.5% is charged on transfers of marketable securities within the scope of Stamp Duty. This change will apply where such securities are exchanged for securities which are not chargeable to Stamp Duty Reserve Tax (e.g. gilts).
Transfers of land and buildings to connected companies
22. Transfers of land to a company have been arranged in ways which avoid paying the full amount of duty. Typically this involves a transfer of land to a company with which the transferor is connected in consideration for securities whose value is less than that of the land. At present, Stamp Duty is only charged on the value of those securities.
– land is transferred to a connected company, or
– part of the consideration for the transfer of land to a company consists of the issue or transfer of securities of a connected company (whether or not the company to which the land is transferred) Stamp Duty will be chargeable on the market value of the land transferred.
B. Group relief
24. The present relief for transfers of assets between companies within a group is open to exploitation because group membership can be readily manipulated. To stop this abuse, the Stamp Duty provisions relating to group membership will be fully aligned with those for corporation tax.
C. Company re-organisation reliefs
25. There are Stamp Duty reliefs for certain company re-organisations where there is no significant change of underlying ownership. One of the conditions of these reliefs is that cash does not constitute a significant part of any consideration given for shares being issued under the re-organisation. Schemes which use redeemable shares to undermine this principle will be countered.
D. Consideration in the form of a future issue of securities
26. Consideration in the form of securities is taken into account when computing Stamp Duty. However, consideration in the form of rights to receive a future issue of securities does not count as consideration at present. This loophole will be closed.
E. Surrender of leases
27. When a lease is surrendered for consideration it is possible to avoid Stamp Duty by surrendering the lease by operation of law rather than by means of a deed of surrender. In such cases, registration is commonly achieved by the submission of a statutory declaration to the Land Registry. Such a statutory declaration (or other documentary evidence provided to a Land Registry) will in future be subject to Stamp Duty as if it were a deed of surrender.
28. Measures B, C, D and E will take effect from Royal Assent.
F. Countering Stamp Duty avoidance devices as they arise
29. As part of the Government’s continuing commitment to tackle avoidance, a mechanism will be introduced in the Finance Bill to allow new Stamp Duty avoidance schemes to be countered between Budgets and with immediate effect, as is already the case for other taxes including Stamp Duty Reserve Tax. The mechanism will require a House of Commons vote when it is used. And it will not be possible to use it for general changes in tax rates or thresholds.
30. Transfers of most loan capital are exempt from Stamp Duty and Stamp Duty Reserve Tax. But the exemption does not apply to loan capital where the interest rate is linked to the profits of a business.
31. Ratchet loans, where the rate of interest reduces as business results improve (or conversely, the interest rate increases as business results deteriorate) will be brought within the scope of the Stamp Duty loan capital exemption, in line with a corresponding measure which will allow companies to claim interest relief on ratchet loans.
Northern Ireland Assembly Commission
32. With effect from 28 March, all transfers of property to the Northern Ireland Assembly Commission will be exempted from Stamp Duty. Transfers to the Assembly itself are already exempt.
Statutory Declarations supporting claims to group relief
33. To simplify the procedure for companies making group relief claims, the Stamp Office will no longer routinely require formal statutory declarations. This change to long standing administrative practice is being made in response to representations, and will take effect immediately.
NOTES FOR EDITORS
Effect on revenue yield
1. The net revenue yield of the Stamp Duty package is estimated to be 325 million pounds in 2000-01, 370 million pounds in 2001-02, and 440 million pounds in 2002-03.
Rates and thresholds
2. The Stamp Duty charge on property sales arises under the Conveyance or Transfer on Sale head of charge in Part 1 of Schedule 13 to the Finance Act 1999 (formerly in the First Schedule to the Stamp Act 1891). The lease duty charge is in Part II of Schedule 13.
Seven year leases
3. A defect in Schedule 13 to the Finance Act 1999 meant that from 1 October 1999 the 1 per cent charge on the rental element of leases not exceeding 7 years ceased to apply to leases of exactly 7 years. As previously announced, in an Inland Revenue Press Release dated 17 September 1999, this defect is being corrected in the Finance Bill.
Intellectual Property 4. Sales of interests in some categories of intellectual property are dutiable under the Conveyance or Transfer on Sale head of charge. There are also fixed rate charges of 5 pounds on certain transactions other then sales, under Part III of Schedule 13 to the Finance Act 1999.
Northern Ireland Assembly Commission
5. The Commission was set up by Section 40 of the Northern Ireland Act 1998.
Stamp Office Manual
6. The Stamp Office Manual was published through CRONER CCH Editions Ltd on 14 March. It will be updated to reflect the Budget changes later in the year.
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