MODERNISATION OF STAMP DUTY
Comments from the Association of Chartered Certified Accountants
July 2002
General Comments
We agree that the stamp duty legislation needs modernisation not only to bring the existing legislation up to date but also to deal with the development of e-business. However by also targeting avoidance methods to ensure that "everyone pays tax on a fair basis" the tax base and the amounts collected should be significantly increased, this being the case is there not an argument to bring down the rate of duty. At the upper levels on large deals there is a significant level of tax being paid, it is the level of tax that drives the avoidance industry. If the overall tax burden were considered to be fair then would there not be less people wanting to avoid paying it.Chapter 1 Introduction and outline
Any reduction of the compliance burden is welcomed. The second phase of development of removing the need for separate notification for stamp duty purposes is again the right way to move forward.
Although any new system should ensure that the individual who wished to deal with the conveyance and completion themselves still had a manual option.
We are also concerned with the reliability and integrity of any electronic system the Government Departments involved introduce. The last thing which individuals need is a system which is prone to failure and error which ends up costing them more time and expense.
Chapter 2 Scope
2.2 There will need to be a workable definition of what the "other arrangements" affecting the value of UK land are, or a clearance procedure for anything that may fall within a grey area needs to be in place.
2.6 The narrowing of the assets chargeable to duty is welcome.
2.10 - 2.15 From what is included in the consultation document the scope for UK land appears to be fair. The exclusions for security over land are a sensible exclusion.
2.16 - 2.17 See 2.2 for comments on "other arrangements". We would also be concerned with extensions of scope to lease surrenders, alterations etc. There would be an element of double counting of the charge as in most cases after a surrender the property would be leased again creating a duty charge at that point. We believe this could hinder commercial transactions and negotiations for terminating lease arrangements.
2.18 - 2.21 There has to be a definite meaning for the value on which stamp duty is charged. You cannot go into a transaction not knowing for certain what level of duty is payable, or facing the prospect of arguing what is and what is not value.
The date that duty is payable will depend to an extent on the eventual definition of value. If there is a definition which gives certainty as to the duty at the outset then the date can be set earlier in the transaction timetable otherwise we cannot see any other option but to put the due date back to when the direct tax is due on each element of the consideration.
It is not likely to be commercially helpful to bring forward the due date of Stamp Duty as expressed in 2.20 and 2.21.
2.22 - 2.23 This approach would seem to be a fair way forward as the substance of the transaction is that there are two property movements. But in the case of a development the Stamp Duty, as is meant to happen for VAT, is a charge on the end purchaser. This rule should be followed and if there are "intermediate" charges arising then they either need to be afforded exemption or subject to a refund procedure. A set-off mechanism would create a cash-flow disadvantage for the developer and is not the appropriate remedy.
2.28 - 2.32 We have no particular comments on these sections.
2.34 - 2.42 The Finance Bill has already brought in anti-avoidance legislation to prevent the use of group relief for stamp duty and S76 FA 1986 relief. Surely this tightening of the regime should be designed to give the Government the protection it needs in this respect rather than hindering business further with another extension of stamp duty. If the Government is purely trying to stop avoidance techniques then a clearance procedure should be introduced if this sort of SPV legislation is included within the revised legislation to ensure that genuine property businesses are not hindered in the choice of planning for company share disposals.
We consider the "belt and braces" approach being contemplated by the Government to stop property transactions through SPVs is going to cause serious and damaging effect on bona fide investment companies hence their share values and peoples pension plans. In an already depressed and volatile stock market such a move in Stamp Duty is inappropriate and unfriendly to business. We strongly disagree that the higher land and property Stamp Duty rates should apply to property companies in general and the Government's desire to produce as high a yield as possible from this tax is going to be as unhelpful to pension funds as the removal of tax credits was.
Chapter 3 The process
3.4 - 3.7 In the vast majority of cases there will not be any problems with crystallising the duty on completion rather than on the deposit. The paper seems to be concerned with a scenario whereby what is termed the deposit is in fact the full market value. In these cases the contract would I imagine have a further sum payable after the deposit but the contract is effectively rested and therefore the outstanding sum is never paid. The duty payment could have a backstop date of say 2 years where duty would then be due on whatever payments had been made under the contract including what was termed the deposit.
3.8 - 3.10 Pre transaction rulings are really only required where there may be an element of dispute over the level of duty payable, we believe that this is likely to be in a minority of cases. We consider such a system is required especially if the anti avoidance suggestions within the paper or indeed further extensions to it are enacted.
3.11 - 3.15 No specific comments.
3.16 - 3.24 With respect to enquiry windows why not align them with the Inland Revenue timescale and specify the period by reference to the accounting period in which the transaction occurred. This would reduce the number of different periods that the businesses and their advisers need to keep track of.
Post transaction rulings would be helpful but it would be far better to have a pre-transaction ruling with all the usual caveats re. Matrix Securities etc.
3.25 - 3.31 No specific comments on these sections.
3.32 - 3.35 I think that a quarterly based system would be beneficial to companies that regularly undertake land transactions. The system should be independent from CTSA so to try and link the two together would be cumbersome and difficult to manage. An independent system could be designed to achieve exactly what was required rather than trying to bolt it onto an existing system which in itself causes companies difficulties.
3.36 - 3.39 Option 1 although being potentially easier to administer would mean that duty was paid upfront on a sum that at that time would exceed what was due on the value passing. It would catch up by the end on the instalment period with the purchaser being responsible for collecting any over paid duty. It is often difficult to obtain repayments from the Revenue authorities. Option 2 could be designed so that the duty was calculated at the outset of the transaction using a total value and the rates applicable at that date. The relevant proportion of duty would then be paid as each instalment is paid, the duty would be represented by the instalments paid as a percentage of the total consideration for the contract.
Unascertainable consideration would need to be valued in either option 1 or 2. A best estimate should be used based on likely value discounted for time as is used for Marren v Ingles scenarios for CGT purposes. If option 2 were to be chosen then the final instalment payment would crystallise the final duty payment within which a catching up to the total duty payable could be made. This would then reflect the actual value passing and ensure that the duty uses the rates applicable at the date of the contract.
Chapter 4 Rate structures
4.1 - 4.2 The slab system for Stamp Duty is a part of the problem for the smooth operation of the property market. It is inequitable and arcane. The same progressive system as for Income Tax should be adopted. The huge jump in the rate, from 1% to 3% for properties of £250,000, has caused hardship and lead to quite ordinary homeowners seeking ways to avoid this steep increase.
Chapter 5 Reliefs and other provisions
In some cases the existing reconstruction reliefs require an exact mirror image of shareholdings to exist after the transaction for the relief to be granted and this often presents a problem with subscriber shares, and the issue of new shares etc. It would be beneficial to have a slight relaxation in these rules so that the spirit of the legislation is kept but it requires less structuring to meet the very specific requirements i.e. allow for minor rounding differences that will deal with subscriber shares in particular.
Chapter 6 Complex commercial arrangements
We defer comment on the specific issues raised in this chapter to those sectors directly affected. We welcome that the Government will work with them to devise the appropriate rules.
Chapter 7 Taking change forward
We welcome the consultation process which has been proposed. We look forward to participating on the working parties involved.