On the one hand stamp duty is both a major revenue raiser (predicted yield for the next couple of years being in excess of £6 billion – more than capital gains tax and inheritance put together) and also an extremely efficient tax to collect. He might also make a case for saying that rates should be further increased to prevent the South East property boom spiralling out of control.
On the other hand there is mounting discontent with the tax, both in the property and securities arena. In particular, a Chief Executive of a major property group has recently been moved to describe the recent rises in stamp duty as “deplorable” , adding that the tax is a “massive and retrospective” one, which “unfairly blights the entire stock of UK property”. In the context of shares the Stock Exchange has recently produced a report campaigning for the abolition of stamp duty on securities transactions, arguing that the existence of the tax unfairly disadvantages UK stock markets.
In the light of all this what can we expect in the next Budget? Starting with what seems certain, last November’s pre-Budget Report indicated that “… faced with growing avoidance of stamp duty, the government will bring forward changes in Finance Bill 2000 to prevent the use of devices which seek to reduce the rate at which duty is payable.” This seems directed at schemes involving packaging up properties and other assets into special purpose companies which are then sold subject to a lower rate of stamp duty at 0.5% on shares rather than the top rate of 3.5% which applies to properties. It is impossible to know exactly what form these changes will take, but a tightening up of group relief rules must be a distinct possibility.
Worryingly, the Green Budget also hinted that some kind of anti-avoidance rule might be introduced for the purpose of countering any “new devices as they arise”. It is difficult to see how such an anti-avoidance provision could work in the context of the traditional operation of the law of stamp duties.
More generally, what might happen? It is quite likely the Chancellor will increase further the top rates applying to assets other than shares. He has already remarked that rates in other countries are much higher. A rise in the next year or two to a top rate of 5% is therefore not inconceivable. He might also look at applying such rates to transfers of shares in land rich companies to attack the use of special purpose vehicles to mitigate stamp duty rates.
The Chancellor may be looking at the law of stamp duty as an overall package. If he introduces measures to increase the revenue from land and other commercial assets (apart from shares) he might at some point consider accepting Stock Exchange pleas to reduce or abolish stamp duty on securities. Increasing the stamp duty take from assets other than the shares will, however, hit businesses entering into assets acquisitions badly as well as purchasers of domestic properties in the South East. There will be increased focus on discovering and exploiting planning opportunities.
What makes the whole topic even more interesting is that the Chancellor must be thinking about something more radical for the future of the tax. With ‘e-business’ becoming increasingly prevalent there may be an increase in practice of dispensing with the need for documents. In this climate the Chancellor could well be thinking about a move away from a documentary based tax to a transactions tax, perhaps along the lines of the model which already exists in the case of shares (stamp duty reserve tax). Such a development would mark a fundamental conceptual shift in the basis of the tax but cannot be that far distant.
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