Modernising stamp duty
Outline of pending major changes to the stamp duty regime
Readers of articles in the Journal on the Budget earlier this year may have noticed references to major changes in stamp duty, immediate and prospective. Contrary to obvious expectations, the changes may be exciting and are certainly important. The prospective reform is substantial and the reform process has been given the overall title of “Modernising Stamp Duty” by the Inland Revenue.
There is an extensive consultative process, in which representatives of the Law Society of Scotland are taking part. Whether the changes are welcome or not remains to be seen (don’t hold your breath!) But it is hoped that the changes should at least reflect Scottish law and practice as well as that in other parts of the UK.
Particularly if you are a practitioner involved in conveyancing (but also if your work is ever affected by stamp duty, which includes most solicitors), you should be aware of the changes which will be introduced towards the end of 2003.
The following notes (prepared by the Inland Revenue, with some adaptations) explain the background to the changes and some of the likely impact.
Why modernise stamp duty?
The Inland Revenue has identified three core objectives for modernising stamp duty:
- fairness: the Government is concerned about the increasing extent to which stamp duty is being avoided. It believes that the use of artificial arrangements to avoid stamp duty on commercial property transactions is unfair to the compliant majority, particularly small businesses acquiring premises and individuals purchasing their own home;
- e-business: to create a regime which supports the Government’s e-business agenda, and in particular the introduction of electronic conveyancing systems which will make the house-buying process simpler, quicker and more efficient; and
- modernisation: to create a legal framework for stamp duty in line with more modern taxes, providing a level playing field and creating a charge that is based more on the substance of transactions.
What will it mean in practice?
Stamp duty will be administered under a revised regime through two phased changes. The new statute will be introduced in the 2003 Finance Bill and in subsequent regulations. The first implementation phase will start later that year. The second phase will be aligned with the introduction of e-conveyancing systems which are being planned in England and Wales, Scotland and Northern Ireland for introduction from 2005 onwards.
Notification and charge will crystallise either when payment (including non-cash consideration) is made in satisfaction of a contract or other agreement to transfer an interest in land (the definition of which for these purposes is under consideration), or when such a contract or agreement is acted on. Rules will be introduced to ensure that payment of a deposit at or before the completion of missives for a house purchase will not trigger the charge before settlement.
Once the new regime has been introduced it will no longer be necessary to send to the stamp office the documents required at present. Instead, there will be a standard notification form which will initially be available in paper with a view to making it available electronically as soon as possible. The range of payment options will remain as at present and Inland Revenue are exploring the scope for the introduction of other electronic payment mechanisms.
The standard notification form will not be stamped. Instead, Inland Revenue will issue a secure receipt to prove that stamp duty obligations have been met and this may be attached to the documents to submit to UK land registries to prove this in advance of registration.
Scope of the charge
The revised charge will be limited to transactions involving land and buildings in the UK. It will extend to transfers of substantial interests in entities (such as companies) owning mainly UK land. Other types of assets, such as goodwill and receivables will be removed from the scope of stamp duty. Finance Act 2002 has already removed transfers of goodwill from scope.
The revised charge will clarify that liability for stamp duty will usually fall on the purchaser or tenant.
Other features of the revised regime
The framework for modernised stamp duty will be suitable for a transaction-based tax, backed up by appropriate enforcement rules covering record-keeping, enquiries, interest, penalties and appeals. Inland Revenue will have a ‘window of opportunity’ in which to enquire into transactions to ensure that stamp duty has been properly accounted for.
The Government is also reviewing the duty on the grant of new leases so that the charge corresponds more closely to a stamp duty charge on a transfer of property of a similar value.
The Inland Revenue has created a website for Modernising Stamp Duty where it will publish details of developments of the revised regime as they emerge. You can find it at: http://www.inlandrevenue.gov.uk/so/modern.htm.
At time of writing, those involved are awaiting (with bated breath) draft legislation (expected before the end of the year), which may clarify the position further.
The Society’s representatives in this process always welcome input from other practitioners – please feel free to contact them through Stuart Drummond at Drumsheugh Gardens.
Alan R Barr Brodies/The University of Edinburgh